AST SpaceMobile Raised $150 Million, But at What Cost?

Source The Motley Fool

AST SpaceMobile (NASDAQ: ASTS) is on the verge of having a revenue-generating business, having just launched its first five operational satellites. That's great news for the company and investors, and enthusiasm for the stock is clear as its price is up more than 600% over the past year. There's just one problem -- AST SpaceMobile is only at the start of a very expensive growth phase.

Here's how raising more capital could be costly for existing AST SpaceMobile shareholders.

What is AST SpaceMobile trying to do?

AST SpaceMobile's business goal is to create a space-based mobile broadband cellular network. This would allow consumers to make calls and connect to the internet anywhere on the planet. The biggest attraction of the service, however, is that it would work with existing cellphone handsets as an add-on service from a user's current telecom provider. It would offer simple and easy connectivity while climbing a mountain, traversing a desert, or sailing the ocean. That's an attractive product offering.

A satellite in orbit around planet Earth.

Image source: Getty Images.

To get to the point where AST SpaceMobile can provide global coverage, however, the company estimates that it will need around 95 satellites in orbit around spaceship Earth. It only just sent up the first five in September, so there's 90 more to go.

It will cost a huge amount of money to get from five satellites to 95. The company expects the next 20 to cost around $400 million. Assuming that the cost stays the same for the rest of the satellite fleet, AST SpaceMobile has to come up with another $1.8 billion to build the network it needs to provide a global service. This project is not only going to be expensive, but it will also probably take years to complete.

AST SpaceMobile is raising cash and needs to raise more

So, clearly, AST SpaceMobile is going to be looking for cash for many years to come. One source is its partners. It has agreements with some of the biggest names in the telecom industry, including heavyweights like AT&T (NYSE: T) and Verizon Communications (NYSE: VZ). It is tapping these relationships for cash. It has over 45 agreements in place with telecom companies around the world, but this isn't the only way it is raising the cash it needs to fund its capital spending plans.

AST SpaceMobile is also selling stock. For example, it just announced that it has successfully raised around $150 million through the exercise of warrants it issued. A warrant gives the owner of the warrant the right to buy a share of stock if they choose. So, each warrant that gets exercised is a new share of AST SpaceMobile.

ASTS Chart

ASTS data by YCharts

Those warrants being exercised provided much-needed cash to help fund the company's ongoing growth, which is good. But 98% of the warrants got converted into shares. Investors need to understand the cost of that capital, which is shareholder dilution.

Effectively, each new share that gets created to fund AST SpaceMobile's growth reduces the percentage of the company that existing shareholders own. That's not so great, even if it is necessary. As the graph above highlights, the share count rose steadily as the company got ready to launch its first five satellites. The share count could go much higher from here as it works to fund the next 90 satellites it needs.

A share count balancing act for investors

Given the stock price rise in 2024, most investors probably won't care that the share count is on the rise. That's fine for now, but it will probably matter more to shareholders if AST SpaceMobile's stock price starts to decline. That's especially true if the company continues to issue new shares while the stock declines. AST SpaceMobile is an exciting story stock, but one that only more aggressive investors should probably be looking at. The likelihood of more share issuances is just one more risk factor you have to consider if you are looking at the stock.

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