Analysis

Why AST SpaceMobile Stock Exploded 35% Higher Today

With two big telecom customers, AST SpaceMobile stock looks more buyable — but it’s not yet a sure thing.

AST SpaceMobile (ASTS 40.91%) stock is on a roll. Two weeks ago, this tiny telecommunications start-up signed a deal with AT&T (T -0.43%) to provide AT&T customers cellphone-to-cellphone broadband internet connections via AST SpaceMobile satellites in orbit. This morning, AST announced it will also extend this relationship to Verizon (VZ -0.49%) customers.

AST SpaceMobile stock jumped 35% on the news (through 9:45 a.m. ET).

AST + AT&T + Verizon = what?

AST and AT&T didn’t state a deal value, but this new deal does. Verizon will spend $100 million “to provide direct-to-cellular AST SpaceMobile service when needed for Verizon customers.” And with both AT&T and Verizon now on board, AST says it can provide 100% coverage to the continental United States, “essentially eliminating dead zones and empowering remote areas of the country with space-based connectivity.”

Logistically speaking, Verizon will prepay $65 million to AST for its customers’ access to the satellite network (essentially reselling service for which Verizon will charge its own customers) and buy $35 million worth of convertible debt from AST (raising the possibility that this debt will convert into AST shares, giving Verizon an equity stake in the company).

Is AST SpaceMobile stock a buy?

That’s the good news. Now, here’s the bad — or at least a couple of caveats you should be aware of before investing in this space stock.

First and foremost, AST SpaceMobile stock is not profitable. The company lost $90 million last year and burned through more than $300 million in cash — so even Verizon’s mega-payment probably won’t last very long.

Second, one reason why AST is burning so much cash is that it’s building five new satellites to support its new service. These satellites are very large and will be expensive both to build and to launch, necessitating significant capital spending, which will increase AST’s cash burn in the near term.

As exciting as the new partnerships may sound, they don’t necessarily make AST SpaceMobile stock a great stock to buy.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.

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