Excellent article on BLDE in Barron's this weekend.
Why Blade Stock Is Ready To Take Off
Blade Air Mobility is bringing ride-sharing to helicopters—just don’t call it the Uber of the sky. The stock can take off without that comparison.
Lately, new aircraft with the fancy name of “electric vertical takeoff and landing”—eVTOL— have been generating lots of buzz, as visions of The Jetsons dance in investors’ minds. These zero-emission aircraft are potentially disruptive technologies, but shares of companies dedicated to them are fraught with risks that come with highly speculative, forward-thinking companies: High valuations, no earnings, no sales, and a ton of cash burn.
Blade Air Mobility (ticker: BLDE) is a less risky way to invest in the eVTOL future, though certainly not risk-free. It’s easy to see why the New York–based company has been likened to Uber Technologies (UBER).
Like Uber, it doesn’t own vehicles, but instead has a network of 29 operators with many different aircraft transporting passengers and high-value cargo in cities around the world. It makes money by charging customers combinations of annual fees and per ride ticket prices, and, like Uber, it takes a slice of sales.
That’s where the comparison falls apart, however. Creating a network of pilots ferrying people to airports and dealing with landing fees and federal air-traffic control is a little different than having a fleet of drivers.
“I’ve given up fighting it,” says Blade CEO Rob Wiesenthal, of the Uber analogy. Blade deals with pilots and not gig-economy workers, he adds. And the level of complexity is higher.
Blade became a publicly traded company in May after merging with a special-purpose acquisition company, or SPAC—one of the first listed urban air-mobility companies. Other eVTOL companies followed, with manufacturers Joby Aviation ( JOBY), Archer Aviation (ACHR), and Lilium (LILM) completing SPAC mergers in August, September, and October, respectively.
Those three companies hope to reshape aviation by offering low-cost aircraft the way SpaceX created new commercial space opportunities with reusable rockets. It won’t be easy.
They have to navigate Federal Aviation Administration approvals while spending billions on aircraft development and watching out for rivals.
Their stocks, which have dropped 30% on average from post merger announcement highs, look a little too speculative given the cash they need to spend and competition between competing eVTOL designs.
Blade, for its part, is happy to see all of the investment going into eVTOL. That isn’t just because it will eventually lower costs. Blade can now offer flights for as low as $95, down from $695 in 2014. New eVTOLs will be much quieter than traditional helicopters, which are too loud to fly in some urban areas. “It’s about quiet,” says Wiesenthal. “When it’s quiet, we can build in more places.”
Blade operates about 10 routes and plans to expand to 28 by 2024, organically and through acquisitions. For instance, the company bought organ transplant transportation firm Trinity Air Medical in September for $23million. Trinity had about $16million in 2020 sales operating in 16 states. Being able to fly on Blade’s larger, existing network means that hospitals can save money, while offering another revenue stream for pilot partners and providing Blade with a foothold in new markets.
Other deals could be announced soon, says J.P. Morgan analyst Bill Peterson, who has an Overweight rating and a $16 price target on the stock, 58% above Friday’s close of $10.10 This isn’t to say that Blade’s stock is a safe bet. The company isn’t profitable. It burned through about $10 million in the calendar second quarter, though it has more than enough cash to expand infrastructure and its network using traditional helicopters and planes, in preparation for eVTOL commercialization. Nor is Blade cheap. Its stock was valued at about $500 million, net of the roughly $300 million in cash. That’s about seven to eight times estimated 2022 sales of $68 million.
Blade is getting close to profitability. During the first nine months of its fiscal year, sales amounted to about $30 million, up 100% year over year. Gross profits—essentially profits before administrative costs, interest, and taxes—came in at $6 million, up from about $1 million a year ago.
Blade needs greater scale to spread over its fixed costs, which were roughly $20million to $25million over the first nine months of its fiscal year. The more sales that Blade can generate off its base, the more profits it earns. Credit Suisse analyst Stephen Ju sees Blade sales growing from $43million in 2021 to $193 million in 2025, and gross profit increasing from about $9 million— a 21% profit margin—to $80 million, or a 41% profit margin. The company should reach positive free cash flow in 2025, enabled partly by Blade’s asset light business model, says Ju, who rates Blade stock an Outperform with a $14 price target—the lowest on the Street— a gain of 39% from Friday’s close.
And that’s just using good, old fashioned helicopters until 2025. If eVTOL does fly, it’s one more reason that Blade can take off.
