Why AST SpaceMobile Stock Just Crashed 25%

It's a good news, horrible news kind of a day for investors in cellphone-to-satellite-to-cellphone company AST SpaceMobile (NASDAQ: ASTS), as shares of one of the world's more popular space stocks plunge 25.2% through noon ET on Friday.

The good news is that AST just announced a plan to get hold of the cash it needs to finish building out its constellation of satellites, providing the world's cellphone users a means of calling anyone from anywhere via satellite. The bad news is that getting hold of this cash is going to require massive dilution of existing shareholders.

And this, in a nutshell, is why the stock is tanking today.

AST SpaceMobile has high hopes

By now, you should all know the story of AST SpaceMobile, the company I mocked back in 2021 for saying it had a secret technology that would permit cellphones to conduct via-satellite calls to other cellphones around the world -- no cellphone towers required. Mockery notwithstanding, AST proved it actually could do what it promised last year, conducting the first-in-history call from one ordinary (i.e., not a "satphone") Samsung cellphone to another, with only AST's BlueWalker 3 satellite in the middle.

Of course, in the meantime, in between time, multiple other companies have shown they can do the exact same trick -- Apple's partnership with Globalstar for emergency cellphone calls in regions without traditional cellphone coverage being probably the best-known. Regardless, AST is proceeding with its plans to become the go-to provider for this kind of service.

To help with that and to obtain the cash it will need to build and launch the satellites that will provide it, this morning, AST confirmed it will create and sell at least 32.2 million new shares of ASTS common stock. Plus overallotment options, this stock offering could go as high as 37 million new shares. And at an offer price of $3.10 per share, this will raise anywhere from $100 million to $115 million in new cash (before fees) for the company.

Good news, horrible news

So, what does this mean for AST's existing shareholders? As early as Tuesday next week, up to 37 million ASTS shares are going to flood onto the market at a price more than $1 below where AST stock closed last night.

AST will receive a tidal wave of new cash it can use to build out its satellite network -- that's the good news. However, investors won't want to pay $4.16 per AST share anymore when all these new shares are floating around at just $3.10 per share. That's the bad news -- and the reason the stock plunged today.

The other bad news is that AST, which had only about 90 million shares indicated on its balance sheet yesterday, will suddenly have 127 million shares outstanding. So, everyone who owns shares of AST stock will end up owning about 29% less of the company than they thought they owned, thanks to the effects of share dilution.

No wonder investors are upset.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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