Joby Aviation(NYSE: JOBY), a developer of electric vertical take off and landing (eVTOL) aircraft, went public by merging with a special purpose acquisition company (SPAC) on Aug. 10, 2021. The combined company's stock started trading at $10.62, ended its first day at $13.40, but now trades at about $5.
Like many other SPAC-backed start-ups, Joby disappointed its early investors by missing its own pre-merger estimates by a mile. It also faced competition from other SPAC-backed eVTOL aircraft producers like Archer Aviation, aerospace giants like Boeing, and big automakers like Hyundai.
Image source: Joby Aviation.
Rising interest rates also curbed the market's appetite for speculative, pre-revenue companies like Joby Aviation. But as interest rates decline and Joby ramps up its production, will its stock finally soar higher over the next three years?
Understanding Joby Aviation's business
Fifteen years ago, NASA produced a concept video of an eVTOL aircraft taking off vertically, hovering, and landing like a drone. That video went viral and inspired many companies to develop their own working prototypes of the futuristic flying vehicle.
Joby was founded that same year. It operated in "stealth mode" for over a decade before attracting a big investment from Toyota in 2020. Delta, in a move which mirrored United's investment in Archer Aviation, invested $60 million in Joby to provide "home to airport" flights in 2022.
Joby started working with the U.S. Department of Defense (DOD) in 2016, and it currently holds a $131 million Agility Prime contract to deliver up to nine eVTOL aircraft to the U.S. Air Force. It already delivered its first eVTOL aircraft to Edwards Air Force Base (AFB) last September, and it aims to deliver its next two aircraft to MacDill AFB in 2025.
Joby's first commercial eVTOL aircraft, the S4, is designed for air taxi services. It can seat one pilot and four passengers, carry up to 1,000 pounds, and travel up to 100 miles at a maximum speed of 200 mph on a single charge. That makes it comparable to Archer Aviation's Midnight eVTOL aircraft. Joby has also been developing a hydrogen-powered eVTOL aircraft which could achieve more than five times the range of its current aircraft.
Over the next few years, these eVTOL aircraft could replace traditional helicopters since they're generally cheaper, quieter, faster, and easier to land in urban areas. According to Fact.MR, the global eVTOL aircraft market could expand at a robust compound annual growth rate (CAGR) of 21.5% from 2024 to 2034.
But will Joby Aviation's business ever take off?
That outlook seems rosy, but Joby initially claimed it could generate $131 million in revenue in 2024 as it shipped its first aircraft. It also predicted its revenue would jump 450% to $721 million in 2025 and grow 185% to $2.05 billion in 2026.
But in reality, Joby generated just $53,000 in revenue in the first half of 2024 as it racked up a net loss of $217.9 million. For the full year, analysts expect it to generate just $430,000 in revenue with a net loss of $496.9 million.
Looking at those numbers, it seems like Joby reported the full potential value of its Agility Prime contract ($131 million) to its SPAC investors as its projected full-year revenue for 2024. However, the payments from those government contracts are usually split into smaller tranches over several years and aren't always immediately paid when an aircraft is delivered.
That apparent exaggeration, along with its over-the-top estimates for the following two years, drove Joby's initial investors to scramble for the exits. But looking further ahead, analysts expect its revenue to rise to $25.8 million in 2025 and more than quadruple to $103.9 million in 2026 as it finally ramps up its production and rakes in those revenues.
Where will Joby's stock be in three years?
Based on its current enterprise value of $3.08 billion, Joby is still richly valued at 30 times its projected sales for 2026. Archer, which has also been delivering its first Midnight eVTOL aircraft, trades at just seven times its estimated sales for 2026. That might be why Joby's insiders sold nearly 90% as many shares as they bought over the past 12 months. By comparison, Archer's insiders bought 25 times as many shares as they sold during the same period.
Joby won't go bankrupt anytime soon, since it ended its most-recent quarter with $825 million in cash, cash equivalents, and marketable securities with a low debt-to-equity ratio of 0.2. But it has also diluted its investors by increasing its share count by nearly 20% since its public debut, and it just priced another $202 million offering to raise more funds.
Over the next three years, Joby's stock will either stagnate if it can stick with its delivery targets or sink if it struggles with more delays. It probably won't head much higher because there's too much growth already baked into its current valuations. Investors looking for a better eVTOL aircraft play should stick with Archer Aviation instead.
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Leo Sun has no position in any of the stocks mentioned. The Motley Fool recommends Delta Air Lines. The Motley Fool has a disclosure policy.
