Joby Aviation: Could This $9 Stock Help Make You a Millionaire?
The company is racing to be the first to bring an innovative new aircraft to market.
By Brett Schafer
Industrial might is back in vogue, and not just for space-industry stocks. A new form of transportation is soon to make its debut in cities around the globe: electric vertical takeoff and landing (eVTOL) vehicles. Joby Aviation (JOBY +6.50%) is one of the publicly traded companies that manufactures these innovative aircraft, and it believes that it can transform transportation across cities.
Its product is neither an airplane nor a helicopter, but something in between, and fully electric-powered. With its stock price currently at just $9 per share, could getting in early on eVTOL pioneer Joby Aviation help make you rich? Let's take a closer look and find out.
The future of short-haul flights
The idea for eVTOLs came from two sources: the plague of car traffic in most large cities, and noise pollution from helicopters, which prevents them from operating in many areas. An eVTOL can operate quietly compared to a helicopter, transporting small groups of passengers from point to point using "vertiports" across metro areas.
Joby's aircraft is currently in the middle of certification with the Federal Aviation Administration (FAA), which requires rigorous testing for all eVTOL start-ups due to the novel nature of the vehicles. Joby began testing in 2018 and is reportedly close to the finish line, aiming to secure full regulatory approval in both the United States and Dubai within the next 12 months.
The company currently generates just a sliver of revenue from its Blade business, which is a helicopter and private-flight rideshare network focused on New York City. In the future, Joby plans to operate its own eVTOL ride-sharing for customers. Instead of just selling commercial aircraft to operators like Boeing, Joby wants to keep its aircraft and sell tickets directly to users through its own vertiport network. It will do so with partners like Delta Air Lines, connecting people at the airport to the potential of eVTOL services, a prime customer use case.
Manufacturing progress and cash burn
To get ahead of anticipated FAA approval, Joby has begun increasing its manufacturing capacity. It is currently producing two eVTOLs a month, for a rate of 24 per year. In the near future, it wants to double this manufacturing pace, and eventually produce 500 vehicles per year. With hundreds of cities around the world that could utilize eVTOL taxi networks, there is theoretical demand for this level of output from Joby and other eVTOL manufacturers racing for FAA approval.
Up-front spending will be massive. Joby needs to build aircraft and secure leases for vertiports before selling tickets to customers, which is why free cash flow has worsened over the past few years, hitting a record burn of $660 million over the last 12 months. At the end of the first quarter, the company had $2.5 billion in cash and equivalents, which gives it a few years of breathing room, but it's still not on a firm financial footing.
JOBY Revenue (TTM) data by YCharts.
Can Joby stock deliver life-changing returns?
Joby Aviation is a high-risk stock. Let's say the company can eventually manufacture hundreds of aircraft a year, operate many air taxi networks in cities across the United States and globally, and improve traffic levels. If so, it's likely to get hundreds of millions (if not billions) of dollars in annual ticket revenue from customers who will pay a pretty penny to fly over traffic to places like the nearest airport.
The problem is that, despite a low per-share price of $9, Joby Aviation's market value is still quite high for a company that is close to a pre-revenue start-up. It currently has a market cap of $9.2 billion, pricing in a lot of this theoretical success before any FAA approval has been made. That should make you think twice about whether the stock can deliver life-changing returns for your portfolio.