AST SpaceMobile (ASTS) lands 10-year deal for broadband service across Saudi Arabia
Although its stock has been soaring this year, Wall Street analysts have been somewhat lukewarm on AST SpaceMobile (ASTS) due to execution delays, stretched valuations and increased competition in the broadband satellite market.
But the company got a boost this week by inking a 10-year commercial deal with stc group to provide direct-to-device satellite mobile connectivity across Saudi Arabia and other key regional markets.
The agreement calls for stc group, which is a digital enabler servicing the Middle East and North Africa, to provide a prepayment of $175 million to AST SpaceMobile for future services.
The company also “made a significant long-term commercial revenue commitment” to AST SpaceMobile, according to the press release announcing the deal.
Through the partnership, AST SpaceMobile will integrate its space-based cellular broadband connectivity with stc’s terrestrial infrastructure, expanding mobile coverage across Saudi Arabia and select countries in the Middle East and Africa.
The aim is to eliminate connectivity gaps by delivering both 5G and 4G services.
This is the first time that AST SpaceMobile will be servicing customers in the Middle Eastern and African regions. The company plans to build three ground gateways in Saudi Arabia and establish a Network Operations Center (NOC) in Riyadh in order to oversee the network’s operations.
Abel Avellan, founder and CEO of AST SpaceMobile, said in a statement that its partnership with stc group “will create a paradigm shift in how people connect.”
“We are pleased to partner with stc as the first regional operator to collaborate with us on this groundbreaking initiative,” he added. “This partnership is another major leap forward to deliver on the promise of truly universal mobile broadband coverage, bridging the digital divide and empowering millions with reliable and easy-to-use connectivity."
Wall Street not sold on execution yet
Bank of America analysts, led by Michael Funk, maintained a Neutral rating on Wednesday, but raised their price target to $85 from $80.
Funk is bullish on the deal with stc global, noting that the $175 million prepayment will be recognized this year and also pointed to the fact that stc has 30 million mobile subscribers. However BofA is remaining neutral on ASTS because while acknowledging this “milestone,” the bank is awaiting “execution and revenue realization.”
Scotiabank analyst Andres Coello downgraded ASTS earlier this month, citing the possibility that the stock faces “painful corrections” due to “significant competitive and operating risks.”
One of the significant headwinds that Coello sees for AST SpaceMobile is increased competition coming from SpaceX’s Starlink direct-to-cell satellites, especially as AST SpaceMobile has been dealing with delays.
He pointed out that the company “is running six months late in shipping the first BB2 to India,” while “Starlink is already monetizing the service.”
Barclays analysts, led by Mathieu Robilliard, also downgraded AST SpaceMobile’s stock this month from Overweight to Underweight, while maintaining a $60 price target.
Robillard cited stretched valuations for the shares after the stock’s most recent rally, as well as concerns over launch delays.
“A second generation of satellites (45 to 60) is planned to be launched but there is always a risk of further delay,” he wrote in a client note. “Also these satellites are significantly larger than the previous generation and untested in space.”
Despite Wall Street’s hesitations, AST SpaceMobile’s stock has gained 279.4% for the year.