2023-06-01 11:31:26 ET
Summary
- The overall 1Q23 results showcase strong execution capabilities and compliance progress.
- The company has strengthened partnerships with Toyota and the US Air Force, securing contracts that bode well for future revenue-generating opportunities.
- Despite the unexpected timing of a capital raise, I view it as a positive signal for Joby's preparedness for upcoming opportunities.
Overview
Reiterating the high level thesis of Joby Aviation ( JOBY ), it is a first-mover in the emerging electric vertical takeoff and landing [eVTOL] industry and intends to manufacture, own, and operate eVTOL aircrafts for passenger flight. I believe the first mover advantage (refer to my initiation post ) is extremely strong here as the gap in experience and knowledge compounds vs peers. I anticipate a market opportunity post-certification larger than today’s helicopter market size given purported noise and safety benefits relatively to helicopters. I think the 1Q23 result was a very encouraging and positive one as it further illustrates JOBY execution abilities in terms of meeting compliance timeline, and deepening relationships with key stakeholders. While some investors might be puzzled by the capital raise given the ~$1 billion cash on the balance sheet, I take it as a positive indication that there are more in the pipeline that requires JOBY to be ready with financial flexibility if the opportunity comes. Net net, aside a rather weird timing to raise capital, I see view this result as a positive one and the share price reaction is also positive. I reiterate my buy rating.
Compliance on track
The most important thing for JOBY now is to ensure it is on the right track to certification, which it is. With the submission of 11 of 13 ASCPs, JOBY has completed the vast majority of its Stage 3 tasks. The first three stages, in which the FAA played a more active role, were, in my opinion, the "easier" ones. The team has seen the FAA maintain a relatively constant turnaround time for reviewing submissions, which is encouraging for certification development. During the testing and analysis stage, it is crucial for JOBY to actively engage and ensure a seamless process while demonstrating their capability to deliver to the market. Considering the management's anticipation of completing their initial aircraft conforming to the company's standards in 1H23, I have confidence in JOBY's ability to overcome the associated challenges. At this stage, significant aerostructures have been assembled, flight electronics have been integrated, and battery modules along with electric propulsion units have been produced, all of which will contribute to the rigorous flight testing process.
Partnerships
JOBY's continued success at strengthening ties with its most important partners is indicative of both its commitment to innovation and the reliability of its products. Since we cannot perform practical due diligence (visit the manufacturing and R&D site to test it ourselves), we must rely on the diligence of our partners. What I see as a positive sign of JOBY's underlying progress is the recent development in partnership agreement – Key powertrain and actuation components of the aircraft, which will be JOBY)%2C%20a,production%20of%20the%20Company's%20aircraft." target="_blank"> supplied by Toyota under the terms of a new long-term agreement announced by JOBY. JOBY also revealed that it had extended its Agility Prime contract with the US Air Force to deliver up to 9 additional aircraft for a total of up to $131 million. Notably, the first two planes will be delivered in early 2024, well in advance of type certification, to show off potential applications to the Defense Department (which means JOBY can generate revenue before FAA certifications). In my opinion, these contracts are all promising signs of strong relationship with key partners, and should bode well for future revenue generating opportunities.
Capital raising
JOBY recently announced a $180 million capital raise, with the increased funding being used to speed up the company's work for the Department of Defense. Despite my anticipation that JOBY would require additional funding at some point (2.5+ years of runway at $1.1 billion cash and $370 million guided spend last quarter), the timing of this need has caught me off guard. The bear narrative here is that cash burn might be worse than expected and management is raising capital now so that it does not seem like they are urgently in need of cash – having ~$1 billion cash on the balance sheet makes it easier to negotiate terms than to be in an obvious duress situation. The bull narrative is that this amount of money would further accelerate current works, meanwhile not pushing the balance sheet to a risky situation. I am leaning towards the bull narrative.
Valuation
To reiterate my model, the primary goal is to demonstrate the range of upside if JOBY can hit management's guidance shared in its SPAC presentation . The key assumption I made is that JOBY will only hit its guidance in FY28 (2 years later than original target of FY26) due to the current macroenvironment.
I assumed JOBY would trade in the range of 6x to 10x EBITDA, based on where Lyft ( LYFT ) used to trade at – my reason for choosing LYFT is because it operates in a similar industry serving a similar function.
Using these assumptions, investing in JOBY could yield +10% to 71% upside from its current share price of 5.62.
Risks
There is no assurance on whether or not the UAM market will continue to grow, as it has not been established with precision.
JOBY’s success will depend on whether there is regulatory approval and availability of eVTOL technology, as well as the willingness of travelers to open themselves up to a different means of transportation.
If these commuters do not see UAM as being beneficial or they decide not to use it because of safety concerns, the technology may not develop at the pace they are hoping.
Conclusion
In conclusion, the 1Q23 results showcase JOBY's execution capabilities, compliance timeline, and deepening relationships with stakeholders. Despite the timing of the capital raise, which some investors find perplexing, I view it as a positive signal that JOBY is prepared for upcoming opportunities. Compliance progress is on track, with the submission of most ASCPs and a consistent FAA review process. JOBY's partnerships with Toyota and the US Air Force further validate its commitment to innovation and revenue-generating prospects. Overall, considering the positive developments and share price reaction, I reiterate my buy rating.
For further details see:
Joby Aviation: Everything Is On Track For Commercialization