Shares of AST SpaceMobile (NASDAQ: ASTS) were falling Thursday. The firm’s stock is down 13.5% as of 2:00 p.m. ET, but it had lost as much as 16.4% earlier in the day. The move down came as the S&P 500 gained 0.2% and the Nasdaq Composite fell 0.2%.
Investors were unhappy with AST’s proposal of a private offering.
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The company announced late Wednesday that it intends to offer $400 million in convertible senior notes due by 2032. The space-based broadband and cellular provider needs to raise serious cash to continue its quest to fill low earth orbit with its satellites. Having successfully launched just five, the company must launch significantly more to achieve the level of coverage that will make it competitive. Each is expensive, as the company relies on other companies like Blue Origen to build them and actually get them into space.
The private offering will help it raise the capital it needs, but it could lead to the devaluing of the Class A stock that investors already hold. AST will take measures to mitigate the effect using a maneuver known as a capped call transaction. How this plays out remains to be seen, but for now, investors are taking a more cautious approach.
Dilution can be an issue, and this is unlikely to be the only time the company needs to raise significant cash, considering the cash-intensive business it’s in, but the capital will allow the company to launch more satellites and drive revenue.
The potential value of AST’s mission is immense. If you are a more risk-tolerant investor, AST can be a great part of your portfolio. Just be forewarned: there will be significant volatility along the way.
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Johnny Rice has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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