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It’s now been a bit over a year since my first article on AST SpaceMobile (NASDAQ:ASTS ). Since then, I’ve been working to develop a better understanding of the company’s technology and familiarize myself with the company itself. Off the back of the company’s somewhat recent announcement that it had finalized a launch date for BlueWalker 3, I figured it was past time I provided an update. This article will allow you to sidestep the months of research I put in, making the complex technology more accessible and clearly laying out the company's business plans.

To understand the significance of the BlueWalker 3 launch date, I should probably explain what BlueWalker 3 even is. But to do that, I should probably start with an explanation of AST’s goals and the technology behind it. AST SpaceMobile aims to launch a satellite constellation that is capable of beaming high-speed broadband, up to 5G, to standard phones, or IoT devices, anywhere on earth. Essentially, they want to create a truly global broadband network where users have service no matter where they are.

The company’s constellation, placed ~700km above the earth’s surface in low earth orbit (“LEO”), will consist of 168 1.5-ton satellites. But if a multi-ton cell tower only has a 45-mile range, how can AST’s satellites successfully bridge this 700 kilometer gap? The answer lies within the link budget calculation.

The first thing to understand is that it’s much easier to beam the signal from the satellite to the phone than it is for the satellite to pick up the signal from the phone. That’s because the satellite’s transmissions are far more powerful than that of a standard mobile phone. So, solving that issue was really AST’s first challenge. Let’s take a look at that link budget calculation.

The link budget equation states that Received Signal Strength = Transmitting Power + Transmitting Antenna Gain − Free Space Loss + Receiving Antenna Gain, or PRX=PTX+GTX−LFS+GRX. Looking at the equation, there’s really only one aspect that AST can control -- Receiving Antenna Gain, or GRX. The BlueWalker 3 satellite will supposedly have a maximum gain of 47dBi, which is extraordinarily high. Commercial versions of the satellite will be even larger, supporting a more powerful antenna. For reference, the gain of a standard rooftop antenna will come in anywhere from 15 to 24dBi.

An iPhone, according to Abel Avellan, AST SpaceMobile’s CEO, transmits at .25 watts, which converts to -6.02 dBW ("PTX"). Again, according to Mr. Avellan, the average gain ("GTX") of an iPhone is .25 dBi, leaving us with free space loss as the only remaining variable. Assuming an uplink frequency of 1980MHz, with an altitude of 700km, the free space loss ("LFS") should be ~155.29dB.

Now, with all of our variables, we can calculate the theoretical received signal strength for BlueWalker 3, which comes out to -114.56dBW. Converting that to dBm, it comes out to -84.56. As demonstrated by the figure below, that puts AST’s signal strength squarely in the “good” category. Keep in mind, the commercial fleet will be even more powerful.

Another major challenge for AST, beyond merely establishing a connection, is being able to support millions of devices simultaneously. Connecting to one device is far easier than connecting to an entire network. This is where the physical construction of AST’s antenna starts to come into play.

AST’s satellite antenna is a flat phased-array construction. If you have no idea what that means, don’t worry, I’ll do my best to explain. With a satellite communications satellite, it is pertinent to have a targeted beam. For decades, this was accomplished with massive, heavily-domed antennae like the one pictured below. However, this construction is incredibly inefficient in power usage and rather cumbersome. It’s that first issue, power inefficiency, which is of more concern here, but more on that later.

A phased-array achieves the same effect by using a large number of small antennae. When all antennae are active, the transmission signal gets amplified towards the middle of the array, canceling out those towards the edges. Thus, a highly powerful, and precise, beam is formed. By introducing a slight time delay to each of the antennae in the array, operators can instantaneously alter the direction of the beam without physically moving any of the hardware, reducing its power consumption and physical footprint.

This phenomenon is commonly known as beamforming and this signal amplification is what allows the company’s satellites to be powerful enough to transmit to regular phones and compact enough to be sent to space. The final commercial satellites will boast a 400 square meter array, which should give you an idea of the type of power this signal will be able to generate. 400 square meters isn't exactly small, but it's completely flat so that it can be folded and launched in a far more compact design. The massive array will work to create a number of spot beams that help the satellite deal with scale, with each satellite acting almost like a group of cell towers.

Another thing to note is that AST’s planned constellation will contain nearly three times as many satellites as Iridium’s (IRDM) 66-satellite constellation. The relevance here is that Iridium’s 66-satellite constellation is the only other LEO constellation in operation today with complete global coverage. I’d wager that this difference stems from a desire to achieve multiple performance advantages.

Firstly, this will help reduce free space loss. Free space loss is the general principle that a signal will lose power over distance, even without passing through any partially-obstructive mediums, such as a cloud. This happens because, as a signal travels, the beam widens (think of a flashlight), thus reducing its power density. If there are two satellites at the same altitude, one directly above you and one 100 miles west of you, the one directly above you is closer. So, less distance for the signal to cover and less free space loss.

A higher satellite count will also allow AST to spread the cumulative data load a bit better. Each satellite can only handle so much data, so having more satellites will enable greater scalability as the AST network is able to handle more users. Finally, a greater number of satellites will assist in reducing potential signal obstructions. The more vertical a signal is, the less likely it is to be obstructed by things like buildings and trees.

Another critical issue that AST has been developing is its ability to seamlessly integrate into partners’ LTE networks. This is where AST is truly revolutionary. In order to interface with an LTE network, operators need an LTE protocol stack. This used to be a physical conglomerate of different systems but, as LTE has advanced and decoupled, this stack can be completely virtualized.

This technological evolution of LTE networks means that AST is able to facilitate a smooth transference of data completely on the backend within its core, essentially tricking phones into thinking they’re connecting to a cell tower just a few kilometers away. If AST was unable to do this, they likely wouldn't have made it this far. The only other option for them, if not connecting to partner LTE networks virtually, would be to fix the problem on the phone. To do that, AST would need to sell its own handsets with processors capable of fixing the coupling issue. Once you start selling your own handsets, adoption becomes incredibly limited.

At this point, it’s probably worth understanding how the signal moves with AST’s system. The satellites work as relay points, meaning they’re really not unlike cell towers. Think about it this way: if your phone is in range of a cell tower, a signal will pick up your signal and relay it to the closest tower in range of the device you’re trying to connect with. AST’s network will pick up signals from phones that are out of range of a cell tower, beam the signal to a nearby ground station, which will then beam it to the closest tower in range of the device you’re trying to connect with.

But it’s important to understand that the satellite isn’t doing any sort of processing. All of that, the part that really makes this system so innovative, is done on the ground at base stations with software. Of course, the system doesn’t work without the satellites but, as noted by the link budget calculation, doing the math to see if establishing a connection is possible isn't exactly revolutionary. I don’t mean to downplay the satellite design, it’s very impressive and had its fair share of challenges, but the work on the ground is really what makes the whole system perform. That’s the truly revolutionary bit.

With all of that out of the way, I can introduce BlueWalker 3. BlueWalker 3 will be a smaller version of the company’s planned commercial fleet of satellites, carrying a 64.4 square meter array rather than the 400 square meters planned for commercial production. Though, despite its smaller size, the satellite will have the company’s full technology stack and will aim to validate the commercial satellite design. Its launch is set for early to mid-September, though if you are at all familiar with the space launch industry, you know that this doesn’t mean anything is quite set in stone just yet. The launch window has already been pushed back from the initial announcement, which had targeted August 15 as the original launch date.

BlueWalker 3 will also serve as a test bed, where AST can fine-tune its systems before its commercial satellite launches. This includes making sure the beamforming works as intended, as well as the various backend software applications that AST has developed. Most importantly, the test satellite will validate operations at scale. This was something that BlueWalker 1 was unable to test for.

BlueWalker 1 was launched back in April 2019, as a preliminary test and validation of AST’s technology. The 6U (2x3U) satellite was built by a dedicated small-sat manufacturer, NanoAvionics, and based upon its M6P bus. The satellite was built in not much more than a month.

NanoAvionics M6P Bus (NanoAvionics)

While it may not look like it, this satellite was designed to contain a standard, 4G-capable, handset. Then, back at its headquarters, AST built a pseudo satellite, BlueWalker 2, to interface with BlueWalker 1 from the ground. The thinking behind this was that it would be far more expensive to build and launch a multi-ton satellite than it would be to launch a small handset, and it didn’t matter too much which one was in space. This decision also allowed the AST team to iterate on the “satellite” to test optimization strategies, getting far more utility out of the launch than they otherwise would have.

In my first article I wrote, “What AST is working with needs to be capable of high transfer speeds and, as such, will likely follow a similar route to SpaceX’s Starlink which, according to court documents, operates in the Ku- and Ka-bands.” Further research leads me to believe that I was incorrect. Reading a 2019 press release from NanoAvionics, we can see that BlueWalker 1 was designed to operate in the Q/V band, not the Ku- or Ka-band. This spectrum ranges from 37.5-52.4 GHz which, as noted by the figure above, is a higher frequency than the Ku- and Ka- bands.

The higher a frequency is, the faster the transmission speed is and the larger the data set can be. However, higher frequency broadcasts are also more prone to energy loss, which can disrupt signals during poor weather conditions and often require a more powerful receiver. This is why emergency communications devices tend to rely on low-band transmissions and high-frequency operators, like Starlink, utilize large receiving antennae. But, if AST really is to achieve 5G connectivity, it’s necessary that it operates in this band and, in order to operate in that band, AST needs the incredible gain discussed earlier.

BlueWalker 1 was just meant to validate that this general principle was feasible. In theory, the link budget calculation said it was possible. This launch proved it. It proved that the frequency communication was viable and that the company’s technology could at least communicate, over LTE, with a standard handset from space. That meant that the company was also able to test its software, which is critical in enabling AST’s LTE connection to integrate with its partners' networks.

Unfortunately, we don’t really know how successful BlueWalker 1 was beyond the fact that it successfully interfaced with the AST ground satellite. This isn’t to downplay the accomplishment, just that I wish there were more public data available. Namely, I’d like to see some speed figures and signal clarity. Regardless, this test upgraded AST’s technology to a technological readiness level (“TRL”) of 6 and, at the end of the day, it was really only designed to validate the radio frequency.

For those of you that are familiar with pharmaceutical companies, you can consider the success of BlueWalker 1 as clearing Phase II trials; BlueWalker 3 would be Phase III. If that’s successful, you’ve got a real product on your hands. The upcoming launch will aim to validate the company’s technology at scale, utilizing the same components that AST aims to use for its commercial fleet.

Assuming the company reaches commercial viability, it’s important to examine what operations may look like. The basic idea is that AST will leverage a network of partners, whose networks it will piggy-back off of to provide customers with a completely global broadband experience. When customers that pay for an AST-enhanced mobile plan travel out of range of a cell tower, their phone will automatically link them to AST’s system.

Under this plan, AST will operate under a revenue-share model with its partners. While this may disappoint some investors, as it could limit AST’s ultimate sales potential, it is almost certainly the best strategy for the company. Not only does this partner network provide AST with a significant customer base immediately upon commercialization, which I’ll touch on more later, but it significantly reduces the initial cost of commercialization.

AST will look to develop some of its own ground infrastructure, but it also plans to utilize a significant amount of its partners’ existing infrastructure. Building out such infrastructure on its own would take considerable time and resources. This also means that AST doesn’t have to compete with other operators for spectrum space, they just utilize their partners’. Given the volume of broadband usage, it is incredibly difficult, and expensive, for a carrier to reserve new spectrums.

The revenue share also ensures that existing providers are equally incentivized to promote AST’s service as their own. Because AST's service will be sold as an add-on to existing plans, it won’t cannibalize the existing revenue of providers either. If anything, it will increase baseline subscription revenue as carriers develop a new way to advertise the superiority of their product over competitors.

Many of AST’s early commercial partners came on with exclusivity agreements. At least to an extent. While the company will no longer offer such arrangements, as evidenced by a number of more recent partners occupying the same region, it will honor those that are already in place. But, there may be some wiggle-room for certain exclusivity arrangements.

Leadership has indicated that the company’s exclusivity arrangement with AT&T, for example, may be similar to the latter’s initial exclusivity deal with the iPhone. In that arrangement, AT&T was the exclusive carrier of the iPhone in the United States for its first few years of commercial operation. So it seems AST is simply subject to a few years of exclusivity, which will allow AT&T to reap the early rewards of best-in-class coverage, but AST will eventually be able to turn toward the entire consumer base. Only Vodafone and Rakuten have similar exclusivity arrangements, leaving the company free to expand early on in other regions.

At the time of its IPO, AST had access to a customer base of 1.276 billion through its partners’ subscribers. Since then, the company has signed another three collaboration agreements with mobile service providers. The first of these, an MoU with Smart Communications, opened the company up to the Philippines with 70 million existing subscribers. The MoU with Globe Telecom would add another 86 million potential customers in the Philippines, while an MoU with Orange added another 220 million subscribers, spread across multiple countries, to AST’s partner network.

With these recent additions, and sustained growth from existing partners, AST’s total partner network has a total customer base of 1.8 billion. That’s 27% of the 6.648 billion smartphones in the world. To have access to such a significant, and diverse, client base at this early stage is incredibly impressive. As competition at some point seems inevitable, this strong opening should create quite a strong moat for the company.

But I’m getting ahead of myself a bit. Initial deployment of the satellites will target the equatorial region, which is largely underserved for broadband connectivity. AST projects that it will need to launch only 20, of its planned 168, to begin providing coverage to the region. This initial deployment will cover 1.6 billion people, many of which do not currently have coverage.

This early deployment will focus on providing low-cost broadband to customers, with plans at about $1 or less per user. For that low price, AST would offer ~100 megabytes of data per month. But it’s the high-end users where AST plans to make most of its money.

For, say, $25 per month, users would have access to 1 gigabyte per month of AST broadband. That’s 10x the data for 25x the price of the more affordable broadband plans. Rather than acting as the sole means of providing broadband access, as it would for many equatorial regions, this high-end service would target people that just want the peace of mind, and utility, of having completely global broadband connectivity. Global coverage would be achieved with 110 of the planned 168 satellites, though users wouldn’t have access to 5G speeds until the constellation is complete.

But a satellite constellation cannot handle an unlimited number of users. Mr. Avellan estimates that each satellite is capable of producing 1.6 million gigabytes per month. In a 168 satellite constellation, the total monthly data production from AST is 268.8 million gigabytes. This could limit upside, but let’s take a look at some of the numbers if the constellation was to get fully booked.

Let’s assume that 70% of customers are paying $25 per month, receiving one gigabyte per month in return. The remaining 30% are paying $1 per month for 100 megabytes. This would leave us with 368 million customers paying an average of $17.80 per month, leaving AST with total annual revenue of $39.326 billion (assuming a 50/50 revenue split with partners). AST expects a long-term EBITDA margin of 98%, leaving them with an annual EBITDA of $38.539 billion.

So, yes, this does cap revenue, but only at a very high level and this would only be fulfilled with some pretty optimistic projections of adoption. I should also note that the company plans to launch another 168 satellites by 2030 to increase its constellation performance and capacity. It seems that bandwidth may prove to be a more direct challenge to AST’s scalability, so this second batch would likely be intended to remedy these potential issues.

These satellite’s won’t come cheap. To be fair, they are actually relatively cheap for their size, but $8 million per satellite adds up pretty quickly. AST originally projected that it would cost them $510 million to complete its first phase of launches, which would provide equatorial coverage. To complete the rest of the constellation, AST expected to burn through another $1.7 billion. Both figures take into account development costs on top of manufacturing.

After its first quarter as a publicly-traded company, AST had $403 million in cash & cash equivalents. Operating costs were $25.1 million and the company had $51.7 million of capitalized costs, largely related to the development of BlueWalker 3. As of its most recent quarter, the company had $255 million in cash and cash equivalents, having spent a cumulative $82.7 million on the development of BlueWalker 3.

In May, AST announced that it had entered into an agreement with B. Riley Principal Capital for a $75 million committed equity facility, where AST can sell up to $75 million worth of equity to the company over the next 24 months. This effectively gives the company access to another $75 million, but at the cost of dilution. The day after the news broke, the market reacted to this anticipated dilution by sending shares down almost 13%. More recently, the company announced that it would be selling its majority stake in NanoAvionics for net proceeds of $28 million.

AST expects all-inclusive satellite costs (manufacturing + launch) to be $14 million per satellite initially, dropping to $10 million upon ramping production. For the first 20 satellites, this implies a cost of $280 million. With $255 million at the end of Q1, and another $103 million available to them through the B. Riley agreement and sale of NanoAvionics, financing its first 20 satellites through existing cash funnels should be doable, but will be tight.

But AST has another potential source of funding via warrants. AST warrants can be exercised for a share of Class A common stock at a price of $11.50, with a forced exercise if shares trade above $18 for 30 consecutive days. If all 17.6 million outstanding warrants were exercised, it would net the company ~$202 million. The only problem is, at this price, why would anyone exercise their warrants?

It’s unlikely that we’ll see a sustained share price of $18 before any significant de-risking event, possibly not until after the first 20 satellites are deployed. Additionally, given the current share count, this would dilute shares by another 10%. But that could be imperative in allowing the company to maintain its aggressive target of achieving global coverage just a year and a half after achieving equatorial coverage.

Even still, the company will almost certainly need to raise more money in the next year or two. With interest rates rising and the company’s shares trading lower, traditional financing methods may prove incredibly costly. Fortunately, AST may be able to take advantage of some federal programs.

In October of 2020, the FCC established the 5G Fund for Rural America. This program will allocate $8 billion through 2030 “to bring voice and broadband services to areas unlikely to see unsubsidized deployment of 5G networks.” AST’s proposed service would cover the FCC’s target requirements, opening the door to them receiving some of this money.

A few months after the FCC established the fund, the United States Senate Appropriations Committee drafted its 2021 Senate Appropriations bill. In it, the committee noted the newly-formed FCC fund and said,

“The Committee continues to support FCC’s efforts to close the digital divide. The Committee believes the deployment of broadband and telecommunications services in rural areas is imperative to support economic growth and public safety. However, the Committee recognizes that due to vast geographical challenges facing mobile connectivity and fiber providers, connectivity in certain areas remains challenging. The Committee understands that next generation satellite-based technology is being developed to deliver direct satellite to cellular capability. This technology is designed to provide citizens with space-based broadband communications to their existing mobile devices, without the need for traditional ground infrastructure to help expand connectivity to hard-to-serve areas, rural areas, and Tribal lands. Therefore, the Committee encourages FCC to address potential regulatory hurdles, to promote private sector development and implementation of innovative, next generation networks such as this, and to ensure that appropriate universal service funding is available to accelerate broadband and telecommunications access to all Americans.”

I’ve added italics to emphasize certain points, but it’s rather evident that the committee is referring to AST. The only other company attempting to do something similar, Lynk, is far behind AST having raised only $10 million over the course of its life. So, while investors shouldn’t rely upon the possibility that AST will receive any funding from the FCC, they should be aware that it could significantly alleviate financing concerns.

I view AST’s leadership team as one of the company’s strongest assets, largely credible for taking it as far as it has come already. Abel Avellan founded the company in 2017, which he funded with the proceeds earned from selling Emerging Market Communications to Anuvu for $550 million in 2016. Mr. Avellan founded that company in 1999, with the goal of providing high-quality bandwidth to remote locations via a satellite network and, at the time of acquisition, the company had operations in 140 countries.

Emerging Satellite Communications is also where Mr. Avellan was first introduced to AT&T, one of AST’s earliest supporters, having formed a joint venture with the telecom giant in 2004. Mr. Avellan is an experienced satellite industry executive, holding 24 patents himself and named Satellite Teleport Executive of the Year in 2017. His annual salary is minimum wage, taking home $36,000 per year, as he instead opts to maintain a large equity position in the company. Mr. Avellan owns 78.2 million shares of AST, netting him roughly 43% ownership of the company.

Dr. Huiwen Yao, AST’s Chief Technical Officer, previously served as Senior Director of Commercial Payload/RF Engineering in the Space Systems Group of Northrop Grumman Innovation Systems. In that position, he helped design and operate a geostationary satellite constellation. Dr. Yao’s academic achievements are also rather notable, with “more than 55 technical papers and a book chapter in the fields of communications systems, antennas, microwave/RF components and EM simulations/CAD.”

Other members of the management team, such as Scott Wisniewski, Executive Vice President and Chief Strategy Officer, inspire confidence in a different manner. While Mr. Wisniewski may not bring any significant technical knowledge to the table, it’s worth noting the position that he left in order to join the AST management team. Mr. Wisniewski was formerly Managing Director of Technology, Media & Telecommunications Investment Banking at Barclays, before making the switch to AST just over a year ago. That position would have netted Mr. Wisniewski about $500,000 per year, according to GlassDoor. While AST doesn’t have to disclose executive pay, as it qualifies as an emerging growth company, I’d imagine that his current compensation is a significant reduction. Though, I’d also imagine that his compensation includes stock options.

So what’s the point of me oversharing about an investment banker? Mr. Wisniewski advised AST on a $110 million private placement in 2020 and on its SPAC merger, which closed last year. Through that process, he would have gained intimate knowledge of the company and its operations. If that relationship gave him the comfort to leave a safe, high-paying, job in favor of equity exposure, I think that should be worth something.

A quick look at AST’s board of directors is also worth exploring, given the names it holds. From Rakuten, both Mickey Mikitani and Tareq Amin, who serve as CEO and CTO respectively, sit on AST’s Board of Directors. Luke Ibbetson, head of R&D at Vodafone also holds a seat, as does Ed Knapp, CTO of American Tower. I could go on, but I think my point has been made.

It’s extraordinarily difficult for a company without veritable promise to attract such a diverse group of talent. While some of the company’s leadership team inspires confidence from the technical expertise, they can lend towards actually bringing the idea to the commercial sphere, others offer confidence simply from their desire to join the team. At the end of the day, there’s only so much information that is made public. That’s one of the biggest risks of the company. But to see management maintain significant equity ownership, or take pay cuts, inspires confidence.

Last time I wrote about the company, just over a year ago, it had about 1,000 patent and patent-pending claims. Now it has over 2,300. This metric alone isn’t necessarily an indication of success, and companies will often tout frivolous patent claims, but it is evidence of the work being done behind the scenes. It does also create a wider moat for the company, warding off potential copycats. While it can be difficult to police such an extensive portfolio of patents, the company has employed Lloyd’s of London to insure its patents. So, if there are any violations, Lloyd’s will uphold their exclusivity.

But there have been more visible progressions made recently as AST readies itself for critical milestones. The aforementioned finalization of a launch date for BlueWalker 3 was a tremendous step, but this couldn’t come before AST received approval from the FCC to test its experimental broadband service. Should BlueWalker 3’s test program prove successful, it will move the company from a TRL of 6 to a TRL of 7.

Earlier this year, AST announced that it had signed a multi-launch contract with SpaceX for its commercial satellites. Consistently offering the most competitive launch prices, this arrangement with SpaceX should provide the company the cheapest possible path to space. Though, beyond just cost savings, it offers significant security for future launches.

Excluding SpaceX, the launch industry is still largely dominated by Russia, an entity that doesn’t appear to be the most reliable at the moment. Even if it were, given SpaceX’s low launch costs, the company tends to have a significant queue for launch spots. By securing initial launches, with the framework to contract further launches, AST significantly reduces the risk of delays as a result of launch inadequacies.

With these arrangements in place, the onus is now squarely upon AST to ensure it can meet its goal of launching its first batch of commercial satellites next year. To support the company’s planned production output of six satellites per month, AST is currently building an extension to its production facility, designated Site 2, which is expected to be completed by the end of this year. AST then expects to ramp its manufacturing lines to a monthly output of six satellites during 2023.

Assuming BlueWalker 3 confirms tech readiness and the commercial satellite program meets its development deadline, the company should have ~110 satellites in low-earth orbit by the end of 2024. While 168 satellites will enable AST’s, planned, 5G connectivity, the company will achieve global coverage with its first 110 satellites. At that point, it can begin opening global subscriptions and begin taking in revenue.

The obvious question is: if this is such a great idea, why has no one done it before? There are a few answers to this question, but I’ll start with the easiest one. The cost of getting to space has come down drastically since SpaceX entered the market. While SpaceX, AST’s launch partner, charges $2,720/kg for LEO, NASA would charge $54,500/kg for a LEO ride on the Space Shuttle back when it was still in operation. This significant reduction in launch costs is largely responsible for making megaconstallations feasible.

But that’s not the only issue that the megaconstallation faces. My biggest concern, regarding the performance of the satellite, is its ability to generate the necessary power to operate successfully. Given the incredible task at hand, AST’s satellites will have a maximum power input of ~100 kW. To give you an idea of how much power that is, the International Space Station has a maximum power input of 120 kW.

Granted, the ISS is almost 25 years old now, but still. That’s a lot of energy. So can it be done? Well, solar panels in space can operate with up to ~34% efficiency. That means, per square meter, the satellite can generate ~340 watts of power. On a 400 square meter array, that works out to 136 kW. Seeing as that’s a bit overkill, the company would likely go for a cheaper panel design, closer to 25% efficiency, to limit costs.

I’m sure there are some of you that are concerned, then, about how the satellite is able to continue operating as it orbits the earth. The simple answer is batteries. But batteries in space are quite a technical challenge, as they must be kept in an optimal temperature window. Luckily, the satellites are able to operate at a lower power output as they cross over the shadow of the earth.

Thinking logically, the dark half of the earth will have less demand because most people will be asleep. It’s nighttime, after all. This means that the satellite doesn’t need to keep up with nearly as many signals, allowing it to operate at a lower power level. It’s unclear exactly what the minimum power level of the satellite is, though I would assume it is in the range of 20kW given the power input of BlueWalker 3.

The power capacity of the satellite isn’t the only thing AST has to concern itself over. The company also has the mammoth task of processing all of the signals its constellation picks up back on the ground. The success of AST’s business is staked upon its ability to cleanly, and quickly, process all of the radio frequencies it receives. My greatest concern remains scalability, both in satellite transceiving and frequency processing.

Additionally, because all of AST’s technology is proprietary and protected, it’s impossible for analysts to review the tech and determine the level of plausibility. As an investor, you’re going to need to be okay with taking that leap of faith. What’s even more intimidating is that, while we don’t know the system’s baseline performance (data from BlueWalker 1), even AST doesn’t yet know how the system performs at scale quite yet.

This isn’t the first commercial attempt to create a global broadband system. TerreStar actually attempted to do so not much more than a decade ago, though it declared bankruptcy in 2010 after achieving minimal success. So what went wrong?

Well, it wasn’t that the technology was impossible. Quite the contrary, actually. TerreStar’s technology worked. However, it required a special handset in order to communicate with regular ground networks. Remember earlier when I said that the real magic of AST’s system is the ability to integrate seamlessly into regular terrestrial networks by managing the LTE connection 100% on the backend? Well, TerreStar managed that LTE connection on the front end.

That meant that, in order to connect with standard terrestrial LTE networks, TerreStar’s system required custom phones. Those custom phones were equipped with a special Qualcomm processor, which physically handled all of what AST now does virtually. So I’d say that the failure of TerreStar helps validate some of AST’s ambitions and serves as a demonstration of the team’s cleverness. I suppose we do also have the evolution of LTE technology to thank.

AST is just one of those companies that I can’t ignore. The upside here is just too high and the technology seems just close enough to be possible. Now, mind you, I’m not talking about a significant investment here. I don’t think that would be wise at all. But this could be the most asymmetric risk/reward opportunity currently on the market.

The sheer insanity of the company’s goal, to provide completely global broadband via a satellite constellation that connects directly to a standard mobile device, clues investors that there is significant risk involved. But it’s not until you familiarize yourself with the technology that you really start to understand what, and how severe, those risks are. Given this overview, I believe readers have been provided with an advantage over the broader market and have the chance to recognize why the current pricing is heavily biased towards the downside. There’s a reason that Wall Street has assigned an average price target of $30, according to FactSet.

But even if the technology is feasible, the company’s timeline is a bit ambitious. To actually get 110 satellites into LEO by the end of 2024 is quite unlikely, but it seems quite possible by the end of 2025. Because of that, the company could be in a position to begin generating significant revenue by 2025, with 2026 serving as its first year of global coverage.

AST’s management projected EBITDA of $5.7 billion for 2026, though Barclays and Deutsche both project lower revenues due to launch delays and slower adoption. In 2026, Barclays expects AST to generate “just” $1.9 billion while Deutsche projects $4.1 billion, assuming successful development. At a 20x EBITDA multiple, the more conservative estimate from Barclays would yield a valuation of $38 billion. That’s a ~3,200% upside from today’s value of $1.15 billion. The Deutsche Bank estimate, with the same 20x EBITDA multiple, would yield a valuation of $82 billion. Roughly 7,000% upside, or 51x upside from AST’s current value.

These estimates serve as early adoption figures for AST, long term value will continue to rise as subscriptions grow. So that’s the upside. What’s the downside? Well, now that the company has sold its 51% stake in NanoAvionics, investors are looking at a valueless holding should the technology fail. There's no question that a 100% loss is a steep fall but, considering the tremendous upside, it's a risk worth taking.

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This article was written by

I tend to focus on long-term stock ideas, oftentimes rooted in tech or EVs. I have been a casual investor for years with solid returns and want to share what I have learned with others who may find value in my thoughts.

Disclosure: I/we have a beneficial long position in the shares of ASTS either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.