AST SpaceMobile Partners with Verizon, Nanox Continues to Disappoint
Taking a Look at AST SpaceMobile (ASTS) & Nano-X Imaging (NNOX).
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1. AST SpaceMobile (ASTS)
AST SpaceMobile (ASTS) exploded nearly 100% this week. The surge is primarily due to two significant deals the telecommunications start-up has secured with major telecom companies. Two weeks ago, ASTS signed an agreement with AT&T to provide cellphone-to-cellphone broadband internet connections via ASTS satellites for AT&T customers. Following this, ASTS also announced that it would extend a similar partnership to Verizon customers.
On the back of these announcements, the company’s stock price went through the roof. Although the value of the AT&T deal wasn't disclosed, the Verizon deal is valued at $100M. This agreement aims to offer direct-to-cellular ASTS service to Verizon customers, enhancing coverage across the continental United States and effectively eliminating dead zones.
Verizon's financial commitment includes a $65M prepayment to ASTS for customer access to the satellite network and a $35M investment in convertible debt from AST, which could potentially give Verizon an equity stake in the company.
While these developments are promising, there are important caveats to consider:
Profitability Concerns: ASTS is not currently profitable. The company reported a $90M loss last year and burned through over $300M in cash. Even with Verizon's substantial payment, AST's financial challenges are far from over.
Capital Expenditures: A significant reason for ASTS high cash burn is its investment in building five new satellites to support its new service. These satellites are costly to both construct and launch, requiring substantial capital expenditure that will further increase the company’s cash burn in the near term.
In conclusion, while these partnerships make ASTS less speculative, the key will be whether management can meet their target dates. This team has a history of delays, and continued setbacks could lead to significant drops in share price. Despite sounding bearish, I hold a small stake in the company and genuinely want it to succeed. However, the company remains unprofitable, burning through cash with no satellites currently in orbit to commercialize their service. If they can successfully achieve this milestone, I will become much more bullish and consider increasing my position.
During times of uncertainty about a company's future, it can be the best time to buy or sell. The greatest investors excel at identifying these opportunities, and I believe ASTS has the potential to be a big winner for investors if they can execute effectively.
2. Nano-X Imaging (NNOX)
Shares of Nano-X Imaging (NNOX) have dropped over 50% this past year, and the reasons are somewhat warranted. Although the company generated significant buzz after receiving FDA clearance for the Nanox.ARC just over a year ago, sales have not met expectations. Adding to this concern is management's lack of transparency.
The U.S. launch of Nanox.ARC has been slower than investors had hoped. However, some optimism came in February when Nvidia (NVDA) disclosed holding 59,632 shares of NNOX stock in its portfolio (which was not purchased by NVDA directly, it was acquired through an acquisition they made).
Left in the Dark
NNOX uses innovative technology to produce X-rays with significantly less electricity, potentially lowering the cost of imaging. Initially intended for use by trained radiographers in professional healthcare settings, its low power requirements could expand its use to more diverse environments.
Additionally, NNOX offers Nanox.AI, a suite of products using artificial intelligence (AI) to identify chronic conditions from existing images. This could make three-dimensional imaging services more accessible in areas with a shortage of trained radiologists.
Despite the innovative technology, their financial performance suggests it hasn't resonated with healthcare providers. The FDA approved Nanox.ARC for musculoskeletal imaging on May 1, 2023, yet total revenue in Q1 2024 rose only 4% YoY to $2.55M (with expectations set by management at extreme optimism). Sales of imaging equipment were a mere $48,000, and revenue from the AI solution acquired in 2021 was just $97,000, resulting in a gross loss of $2M. Shutting down the AI solution could actually save the company about between $6M-$9M annually.
As of March, Nano-X Imaging (NNOX) had $44.9M in cash but lost over $12M in Q1. Without significant improvements, the company may need to raise capital through a dilutive share offering, potentially erasing more shareholder value. Currently, the Street's major concerns are liquidity, execution, and transparency. NNOX management has repeatedly overpromised and underdelivered on their targets. Back in 2020, there were numerous "signed" agreements to deploy thousands of Nanox.ARC systems, but by 2024, only a handful have been deployed in the United States (primary devices, not 2D). Additionally, management has consistently failed to provide transparency regarding the core business operations of these systems.
So, we have three primary issues here. Although these problems are significant, I am not a bear. I hold a small percentage of NNOX in my portfolio and believe it could be a big winner. However, for this stock to regain liquidity and for investors to stop worrying about ongoing cash burn, we need to see better execution from management. They also need to improve their communication. We are still some distance away from realizing the full potential of this investment, but the most reasonable approach right now is to hold until we see clear signs of execution.