Submitted by Kelanfarx t3_yleesj in wallstreetbets
1/ ASTS - An Investment and A Trade
If you are a non-virgin, you understand that the sole purpose for investing and trading is to generate returns, to increase the NAV of your brokerage account and to push your net worth in the upward direction. Why? Because it feels good to have the monetary freedom to do whatever the fuck you want, because green GAIN porn is better than red loss porn, and because it is better to look at your account balance and smile instead of twitch in misery. You are here to make money. You are not here to “be right,” — you are here to generate returns, and preferably, returns in excess of the market, in so much excess of the SPY that you are catapulted towards massive capital appreciation (meaningful tendies) before age 80.
The challenge obviously is that it’s extremely fucking difficult to extract money from the markets, especially with an appropriate level of risk. Unless you are a boomer investing with a 50 year horizon, the markets are designed to fuck you over. Markets are difficult and good opportunities are scarce, especially in a bear market environment like we’ve seen YTD. But remember Warren Buffet said “be something when others are something”? Yes, and today is your opportunity.
Right now, an asymmetrical risk-reward investment window is present in ASTS, a company called AST SpaceMobile, where (i) the disruptive technology and scalable commercialization plan are set to create immense value in the coming months, years and decades, (ii) the macro environment allows for a chance to get in early into a potential “millionaire maker” name like NVDA or TSLA, and (iii) a contrarian and concentrated bet can provide incredible upside with manageable level of risk.
I am going to spare you impatient people who are already desperately looking for a TLDR from the “generational opportunity” technical thesis but instead show you the swing TRADE SETUP in ASTS that in my mind has a chance of printing money in the next few weeks and months. Three factors: (1) three meaningful catalysts in mid November, (2) continued business plan execution updates, (3) forces from market participants, potentially with better macro tailwinds, could make the ASTS stock spike, consolidate and push upward in a staircase pattern to high levels. Read on.
2/ The Background and the Backers
Notwithstanding the fact that Cathie Wood is washed up, disruptive technology wins in the long-term. Not Roku or Zoom but TRUE innovation that propels humankind forward. ASTS pushes forward that kind of technology, aiming to become the first comprehensive space-based cellular service provider, bridging the connectivity gap across the globe by providing high speed internet access to billions of unconnected people, and powering billions of others who move in and out of coverage even in developed markets like the US.
ASTS is launching a network of satellites to provide these services to any mobile device on the planet. That is achieved through deploying and operating satellite “cell towers” in orbit that will cover the entire Earth with 4G / 5G / LTE signal. The technology links directly to any unmodified smartphone, and unlike Starlink, doesn’t require any additional hardware. This monumental step forward in global connectivity is done through launching proprietary 168 BlueBird satellites into orbit and beaming signal through ASTS patented technology.
All sounds dreamy but this achievement means little for ASTS stock without a solid plan for commercialization. ASTS monetizes the technology through B2B revenue sharing agreements with existing global MNOs like AT&T or Vodafone, who already back the company and even have repeated investments in ASTS. These profit sharing mechanisms effectively remove any customer acquisition or CRM costs for ASTS, and open the opportunity for fat free cash flow margins (Transhumanica thinks 90%+ EBITDA margins) after the network is operational.
Right now, ASTS is on path for business plan execution with one of the main hurdles, having the first BlueWalker 3 satellite in space, already complete in September. The BlueWalker 3 is now orbiting Earth at 17,000 mph and is ready to start “unfurling” on November 10th with testing shortly thereafter.
BlueWalker 3 satellite and the ASTS team
The TEAM: Abel Avellan, Rakuten, Invesat, Vodafone, AMERICAN TOWER corporation.
The guy in charge, the CEO is Abel Avellan. A chad who was founder of another satellite-based communications company EMC that he sold for $550M in July 2016, using proceeds for initial funding of ASTS. He is executing on the business plan with skin in the game with 78M shares (~$500M currently) and majority of his networth tied in ASTS shares.
Other direct backers that have stakes include Rakuten, Invesat, Vodafone and American Tower Corporation. On top of that ASTS has partnerships and conversations with multiple MNOs in different jurisdictions to provide their service through the B2B revenue sharing model once satellites are operational. Quick cap table. Total shares outstanding 183.0M from 10Q as of August 5, 2022.
From proxy statement in August 2022
From OpenInsider: insider transactions on ASTS since de-SPAC, all purchases, no selling even when shares unlocked and ASTS spiked 100%+.
The BELIEVERS:
- Rakuten, American Tower, Vodafone (along w Samsung) did ASTS Series B then PIPE ($230M) investments.
- Mikitani Hiroshi is billionaire Rakuten CEO backing ASTS with a massive stake.
- Transhumanica with a detailed research paper that I highly recommend. They have an interactive valuation model with a $114 current PT.
- BRiley equity research has outstanding $15 PT.
- DB equity research has outstanding $30 PT.
- Barclays equity research has outstanding $15 PT.
- Also people on the ASTS subreddit have provided incredibly detailed research on the technology and the company.
The NON-BELIEVERS:
- Kerrisdale Capital released some bearish seller research if you’re interested in reading a negative scenario case.
Kerrisdale Capital claims ASTS is unconnected from reality
3/ The Astrology and the Price
As a former SPAC, ASTS first got attention in late 2020 and participated in the high-growth mania of that period, reaching a peak price of over $25 in February 2021. To me, that price action is of little significance as it was fueled by an incredible frenzy in overall markets, which soon deflated and normalized later in the year. The company de-SPACed in April 2021. Since then, ASTS displayed remarkable resilience despite being a high-growth, unprofitable company in a very punishing macro environment, where rising interest rates have caused the valuation DCF discount rates to go up, valuation multiples to go down, acutely hurting stocks that have more expected FCF value in the future.
The market is a mystery and it can price something far from true value for a long time. It’s hard to value ASTS as most cash flow is in the future. To me, if execution is good, I’d just do $5B EBITDA in 2026 and 8x multiple, discounted to today at 20% – we’d see $100+ per share valuation. Of course it’s a bit binary so we have to be aware of the downside risks with execution at zero. Nevertheless the equity research people are bullish including Deutsche Bank, Barclays, BRiley. You can also take a look at numbers at Transhumanica or peruse through spacanpanman’s Twitter with more research and projections summarized neatly.
Deutsche Bank note from August when ASTS spiked on BlueWalker news:
Interestingly, from June 1, 2022 to present the daily return correlation between ASTS and SPY/QQQ has been remarkably low at around 0.38, which I view as a good thing. Less dependent on daily volatility BS from indexes.
ASTS has traded in a huge channel from the lows of $5.50 to the highs of $14.00 since March 2021 to present. Previous multi-year stock “winners” they all came out of incredibly long consolidation bases which we observe here.
ASTS year-to-date performance as of October 26 is around -22.8%, compared to the QQQ -34.3%. For a high growth stock, it shows incredible strength — compare it with names like ARKK that are down -62.0% YTD, big dog ABNB -45.2% and SNOW -53.8%. This relative strength gives an indication that despite being currently unprofitable ASTS is likely going to be a leader going forward. Strong stocks are often future winners.
Pretty much from early July to mid-August the indexes grinded higher with QQQ up around 20% — during that time ASTS consolidated in a narrow range. After a few catalysts and good reports in early August, ASTS jumped from around $6.5 to around $14 in a matter of a few weeks. At $14 supply zone, the price action slowed and got slammed down with the overall market and sellers, pushing it down with more inflation worries and higher interest rates woes.
Now we are back at the “support” or demand area, at so-called lows where risk-to-reward becomes super attractive.
4/ The Dangers of a Bearish Trade and Previous Catalysts
The no-brainer trade this year was to short unprofitable technology and do nothing but watch how the overall market punishes those stocks. That was the “easy” trade on a company like ASTS that sellers capitalized on. The downward adjustment of multiples due to higher interest rates pushed DCF valuation models lower and ASTS price has been sinking. Naturally, sellers use the opportunity to profit from a structural decline where not much can be done really, the tide goes down and takes every ship down with it. BUT, this can be dangerous when a company is executing on the business plan and has positive developments.
This year we had 2 catalysts that showed what can happen when ASTS keeps executing on the business plan.
- On March 9, 2022 the news came out that ASTS partnered with SpaceX to deliver their satellites to space. That proved ASTS is meaningfully moving forward with its objectives, and resulted in a ferocious seller covering rally that day, where just “riding with tide” as a seller backfired massively. ASTS stock almost doubled in a day: from lows of $6.20 to highs of $11.40. Later, macro pressures set in again, pushing ASTS lower and the “easy” bear trade came back in, sinking all high risk assets.
- On July 28, 2022 yet another positive news momentum came in with BW3 satellite launch, that forced a lot of sellers to get out of the way. The frenzied rally more than doubled the stock price in a few weeks. Price went from $6.20 to $14.20, then received expected push back and yielded with broad market weakness.
After Kerrisdale released their bearish report in mid-September price nose dived and we visited the $6 “support area” and bottom of the channel. Interesting to note that previous 2 times, the stock launched from around $6.20.
I think right now there is little idiosyncratic movement to the stock, mostly macro pushing it lower, but that is about to change. Now is an optimal time to get in because we are the bottom of the channel and 3 massive catalysts are upcoming next week, hopefully aided by the tailwinds from macro (not guaranteed) and pressures from sellers relenting as company executes.
5/ The New LONG Trade and Upcoming Catalysts
We have an ER update call on Monday, November 14. The three main events will serve as proof of company execution and are likely to push the price up in the next few weeks.
- Unfurling of the BW3 satellite is going to happen on November 10. Successful completion is likely to serve as a big catalyst to the stock. Satellite will open up and become operational and ready for testing.
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Testing of the satellite should happen shortly thereafter and an announcement confirmation of working technology is going to be an even larger event for ASTS. This will be the proof that technology works with MNOs.
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Other funding or partnership updates, like 5G Fund providing indication of possible financing to ASTS may happen by the end of the year, as well as getting licenses in new jurisdictions (Japan), or more partnerships with MNOs.
Comments on ASTS eligibility for being financed by FCC's 5G Fund
One of the arguments of sellers is that company will need additional funding before generating meaningful free cash flow. Currently they do have runway to revenue, and that gets even better if the FCC 5G fund awards capital to ASTS or if price stays at $18+ for a month, where warrants become redeemable for $200M of capital. Moreover, there’s other non-dilutive financing options, but regardless I think they’ll be explored in second half of 2023 or later.
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The reason why I think the moves up on positive news could be violent is because there will be additional buying pressure from bearish traders to get cover their positions in face of good data.
Once ASTS confirms that these events are successful, stock will likely become favored by passive and risk-averse investors, with institutional funds buying in and momentum/breakout traders scaling into positions. I believe we’ll get to $14 area if updates are positive, and a breakout above that is likely to clean the path to $18+ which I think is going to be the turning point for the company, that will set it up for long term success.
ASTS 1D timeframe, imaginary price action.
Disclaimer, Risks:
Past performance is not indicative of future results. This is not financial advice. There are risks of company failing and stock going to zero.
TLDR:
The no brainer trade this year was to short unprofitable technology and just sit tight. But it is dangerous now, especially on a company like ASTS, which is a powder keg that can explode on successful business developments that are to be announced on November 10 and shortly after. Three upcoming catalysts are likely to serve as a repeat of price action in March and August. Although price is artificially suppressed by the macro environment, once that pressure subsides, the stock will stay high and keep pushing forward as company executes.
Positions: 8,000 shares at $6.27
