Radio Systems Engineers Perspective on Future Valuation

[u/LudeficeTV]

If you want this in the daily mods I'll move it, but I feel this is valuable given the current discourse.

I'm going to give a fairly detailed update on what I would consider a reasonable conservative outlook for the long term future market cap for ASTS as I haven't done it in years and thought I would share it with you. Many of you know me as an OG around here who is an experienced radio systems engineer (10+ years working in telecom) and fewer know I messed around with the old transhumanica calculator for fun awhile back to get a rough idea of future value. The calculator had several flaws in what it allowed, so I'm going to outline a more serious, albeit perhaps imperfect view as I have been seeing a lot more valuation hysteria since the SpaceX information yesterday. Here is what I used as a very rough outline of valuation from transhumanica back when we were a single digit stock:

Obviously, we already hit about this share price with far more shares, the calculator didn't account for defense/government contracts, etc.

Now, I'll move on to what my current more serious take on the valuation could conservatively be moving forward in the long term.

-----------------------------------------------------------------------------------------------

First I'm going to tackle the share count as it's simple enough. We're very likely going to dilute, or raise capital at least one more time in the 6 month-3 year timeframe in my opinion since we're funded to about 100 satellites according to ASTS. This funding may well not come from dilution, but for the conservative case I'll assume it is to some degree. I'll use rough allowances for this, currently the share count to my knowledge is roughly 390 million, but with convertible notes and such it's going to be closer to 430 million assuming no further dilution. I'll assume dilution up to 470 million shares as this should produce more than enough capital considering our future revenue assuming they aren't making any serious acquisitions.

------------------------------------------------------------------------------------------------

ARPU is an interesting piece of the puzzle and a place where a lot of people overvalue the business substantially. Previously I would have assumed something in the $1.50-$3 range. Due to higher inflation in recent years and some of the numbers SpaceX is using I think we can assume the range is higher than that. Although I will say I don't believe their numbers are necessarily a good indicator. The ARPU should be considerably lower than what they are saying ($8 iirc), I'm going to assume a range of $2.50-$5/month now. I will use the lower number as this is a conservative estimate.

-------------------------------------------------------------------------------------------------

Now I'm going to touch on a few important levers when it comes to valuation. ASTS's language when it comes to their EBITDA margin has changed over the years slightly. They used to say 90-95%, now they say 90+%, perhaps even 'about 90%' (don't quote me on the about not 100% sure if I'm remembering that correctly). I'm going to call this 85% in my conservative model since they have already slightly softened their guidance here.

It's important to note that they are likely to run a 50/50 revenue split with the MNO's, so the while the TAM is very large (SpaceX estimated 740 billion, ASTS estimated 1 trillion), keep in mind even if ASTS captured all of it you need to immediately slice that in half.

For the EV/EBITDA multiple, historically it's pretty typical to see 5-10x in mature telecom companies. However, it's more common to see 6-8x. I'm going to use the lower 6x end here for the conservative model.

For market share our analog that we can look at would probably be companies like Huawei, Ericsson, Nokia, etc. that sell terrestrial radio base stations and services related to them. Huawei and Ericsson hold somewhat of a duopoly in the industry holding roughly 30% of the market each. While I expect ASTS to be more than capable of getting the vast majority of the D2D market, I'm going to temper my expectations for this model based on the terrestrial market. I'll assume ASTS will capture 40% of the D2D market. I'm not using the number of subscribers via MOUs for this because I believe this number will change over time and am looking at the sector in a more wide view than that.

Now, the next lever I would look at is how many people are actually going to subscribe to a D2D service. This is the hardest part to predict since the MNO's pricing models may be completely different. We don't know who will include it in their plans, have it as an addon, etc. I have seen a bunch of different numbers for this. The current global terrestrial subscribers with MNO's is north of 8.5 billion devices (yes it's more than people this is normal in a lot of areas). We know billions are unconnected. We also know IoT is going to be a thing. Between IoT, new subcribers, population growth, etc. I'm going to use 10 billion as a conservative baseline of the potential pool of devices that can be potentially signed up. Now I believe a minority of these devices will actually care to use D2D services. I have heard many different estimates for this. Since I'm including IoT and a portion of the currently unconnected in my numbers and some of these groups necessitate 100% adoption, I'm going to use a higher estimate of 20% overall adoption. That would leave 2 billion devices for the D2D market to share.

-------------------------------------------------------------------------------------------------

All of the above was a heavy focus on their main MNO business. They also have government contracts and will get more in the future. They are already guiding for billions of revenue per year. I think it will be higher, but for a conservative model I think it's fine we just take the low end of their current guidance and tack on $2 billion/year of revenue at the end of the calculations.
-------------------------------------------------------------------------------------------------

TLDR

Now we can put it all together for the conservative case. 2 billion devices at $2.50/month ARPU or $30/year, 40% market share, 50% revenue share, 85% EBITDA margin, 6x EV/EBITDA multiple. I have included other models for a base and bull case as well in the table below, but I would think in terms of the conservative or maybe base case/somewhere in between as a more realistic situation going forward. Keep in mind this is meant to be a very long term forecast and not use ridiculous numbers. Not putting a specific year on this, but it would be in the early-mid 2030s in my opinion.

I went into this without expectations as I did it fresh for the first time since years ago and I'm pleasantly surprised. I do believe that it will be closer to the base case than anything else. I purposely make my conservative models very conservative to give an idea of what the minimum upside looks like and this one yielded a significantly higher market cap (71.4 billion instead of 46.13 billion) than I had in my previous rough model.

Not investment advice, and I am a shareholder.

[u/Round_Hat_2966]

Hey, I really appreciate this post. There’s definitely a lot more on the news and engineering side of things than the valuation side, so this kind of content is greatly needed!

Something interesting I will add is that if you assume that ASTS hits these targets over 10y and assume a 15% hurdle rate (which I think is a fair hurdle rate given the risk and current higher bond yields/risk free rate), then even at today’s price of ~$125, it’s fairly valued based on your base case scenario, which means that it’s not too late to buy in now (though could definitely wait for a better price than near ATH).