Key Points
AST SpaceMobile is raising new funds through convertible notes.
The stock has fallen precipitously from its highs.
Shares still look very expensive.
Shares of AST SpaceMobile (NASDAQ: ASTS) have collapsed 25% this week, according to data from S&P Global Market Intelligence. The potentially disruptive direct-to-device satellite internet provider is raising $1 billion in funding through convertible notes, sending the stock sinking.
AST SpaceMobile stock is now down 59% from highs set less than two months ago. Here's why.
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$1 billion in convertible notes
On July 15, AST SpaceMobile finalized a surprise $1 billion convertible bond capital raise. These are bonds that can be converted to stock above a certain share price; the specific terms of this deal call for the debt to expire in 2034 at an annual interest rate of 1.6% and a conversion price of $79.60. AST SpaceMobile currently trades at around $55 a share.
This means $16 million in annual interest payments added to AST SpaceMobile's income statement, which is actually a sizable portion of the $85 million in trailing twelve-month revenue it generates. Investors were probably a bit blindsided by this capital raise, seeing that the company had $3 billion in cash on the balance sheet at the end of last quarter.
Image source: Getty Images.
Should you buy the dip?
AST SpaceMobile has had major cash flow issues, burning $1.37 billion over the last twelve months. It also has operational issues with getting its satellites into orbit, such as the recent misaligned launch from Blue Origin and the explosion of Blue Origin's launchpad. This could delay the full commercial launch of AST SpaceMobile's satellite network, keeping it burning cash for the foreseeable future.
Take this all together, and it's no surprise the stock price is collapsing. However, with a market cap of over $20 billion and further dilution on the horizon, the stock still doesn't look cheap today.
Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends AST SpaceMobile. The Motley Fool has a disclosure policy.