We are short shares of AST SpaceMobile, a $2bn satellite company trying to sell the dream of connecting billions of people with mobile broadband directly to their phones from space, but without a credible ability to bring that dream to reality. A 2021 SPAC, AST features a satellite design that is destined to fail, unsurprising given management’s uninspiring backgrounds, and a business case that makes little sense in nearly all respects, whether one scrutinizes the end markets it’s trying to monetize, its brutal competitive landscape or how it can ever justify its massive initial capital costs. Naturally, given how daunting the company’s end goal is – operating a constellation of hundreds of giant, complex satellites that will provide fast, reliable mobile internet globally – management keeps pushing out the projected timeline of when it could conceivably provide any sort of viable service. Yet the stock has nearly doubled in the past few months, due to the launch of a test satellite that hopes to merely demonstrate that a simplified version of the ultimate theoretical satellite can provide internet connectivity. AST is an ambitious, wildly risky science project that has no business (literally) being public – only the SPAC bubble of 2021 could have managed to change its destiny from being a forgotten zero tucked away in a few venture capital funds into what is rapidly becoming a classic stock promote.

AST’s vision is to be the first space-based cellular broadband network that connects directly to any mobile phone, providing service to people when out of the range of terrestrial networks. To pull off this feat and test its technology, AST recently launched a prototype, BlueWalker-3 (BW3), into orbit. In the next 2 weeks, BW3 will begin a critical step in its mission: delicately unfurling its massive, 64 square meter phased antenna and solar array, the largest ever commercial communications array in space. Few entities beside NASA have attempted to deploy anything similar. Despite being larger than a 3-car garage, BW3 is only a few inches thick – a design which alarmed multiple experts we spoke with owing not only to its “terrifying” size, but also its “infantile” demonstration of structural and thermal engineering soundness. AST will be operating BW3 without the benefit of reliable testing of full deployment of the array beforehand. Unfolding far simpler arrays by organizations with significantly more funding, preparation, engineering firepower, and space heritage than AST have still resulted in mission failure.

Even if AST passes this critical test, the obstacles to establishing a viable business model are massive. BW3 is an experiment. The production version of what AST needs to fulfill its vision, a satellite class named BlueBird-1, is anticipated to be a staggering 8x larger than BW3. BlueBird-1’s capabilities are what underpins street models, what management promotes on calls, and what retail investors have pinned their hopes on. The unsettling reality, however, is BlueBird-1 has fallen two years behind initial promises, with management recently pulling guidance on when this much-hyped satellite will launch. Our checks strongly suggest the constellation will continue to see further rising costs and launch schedule delays – setbacks that AST can ill afford given the entrance of fast-moving competitors in SpaceX and Apple. The backdrop for all this is a TAM we believe is overstated and difficult to penetrate, with niche use cases that are hard to monetize for populations currently covered by terrestrial cellular networks and an underserved population that while large is nearly impossible to monetize for a host of entrenched, socioeconomic reasons.

Investors were initially told that proceeds from the SPAC meant financing risk would be “substantially eliminated.” A year and half later, the company needs additional funding just to get commercial operations off the ground. The company’s ridiculously optimistic financial forecast called for $1bn in EBITDA in 2024; in reality, P&L will likely be deeply negative. Billions must be spent to achieve full global coverage and the company will likely continue issuing dilutive equity (it sold stock at an implied ~$6.50 earlier this quarter and announced a new $150m at-the-market equity facility on September 8). A successful demonstration of a singular prototype will not magically transform technology cooperation agreements with mobile operators into contracted revenue. Retail investors who busy themselves poring over the technical specifications of a long-delayed test satellite, without verifying management’s claims with independent experts on satellite technology, are unconnected from AST’s financial reality.

Read our full report here.