Joby Aviation Stock: It’s Going To Be A Long While Before This Plane Flies (NYSE:JOBY)

After the market closed on August 7th, the management team at Joby Aviation (NYSE:JOBY) announced financial results covering the second quarter of the company’s 2024 fiscal year. The bright side to the results reported by management was that the company did exceed analysts’ forecasts on the bottom line. By considering how significantly negative profits and cash flows are, this is not all that impressive. The fact of the matter is that the company continues to see its cash balance shrink quarter after quarter. And at the same time, shareholders continue to be hit with dilution.

The good news from all of this is that the company is making progress toward its objectives. But as I detailed in a prior article about the enterprise that was published in early May of this year, the firm still has a long way to go before being a truly viable operation. At that time, citing the potential that the company had, but also detailing all of the negatives associated with it, I reaffirmed my ‘hold’ rating. But since then, the stock is actually down 8.7% at a time when the S&P 500 is up 1.4%. Unfortunately, I don’t really see much changing for the foreseeable future. Despite some progress made by management, the company still has a long road to travel. But at the same time, the potential that the company offers prevents me from becoming outright bearish. So for now, I think that maintaining my ‘hold’ rating makes the most sense. But that could obviously change as time goes on.

A look at the latest quarter

From a revenue perspective, Joby Aviation really is nothing shy of being a nothingburger. During the second quarter of the 2024 fiscal year, the company generated only $28,000 worth of sales. These related to its flight services activities involving its two eVTOL (electric vertical takeoff and landing) aircraft. This compares to absolutely no revenue achieved in the second quarter of 2023. The real story, then, comes not from the top line, but from the bottom line.

The good news here is that the $0.18 per share loss reported by management was $0.01 per share greater than what analysts anticipated. It also represented an improvement from the $0.45 per share in losses reported for the second quarter of 2023. While this improvement from a net loss of $286.1 million to $123.3 million might seem significant, much of this was actually attributable to a $190.6 million swing in gains or losses from the change in fair value of warrants and earn out shares. You see, last year, the company booked $180.7 million worth of gains. But this year, for the second quarter, that number was only $9.8 million. If we look only at operating profits, we would see an expansion in the firm’s loss position from about $116 million to $144.3 million.

Other profitability metrics worsened without exception. In the second quarter of 2023, the company saw operating cash flow come in negative to the tune of $71.7 million. That number this year was negative to the tune of $98.8 million. If we adjust for changes in working capital, we would get a worsening from negative $78.7 million to negative $100 million. And when it comes to EBITDA, we would see a decline from negative $83.3 million to negative $107.2 million. In the chart above, you can see financial results for the first half of 2024 compared to the first half of 2023. And just as was the case with the second quarter on its own, results for the first half of this year show a worsening almost across the board from a profitability and cash flow perspective.

Outside of the revenue and earnings picture, the overall situation for the company is showing some progress. As of August 5th, of this year, the company has achieved 100% compliance and certification with Stage 3 of its 5 stage approval process with the FAA. This is unchanged from what the company saw in the first quarter of this year. However, for Stage 4, Joby Aviation has achieved 37% of what it needs for completion, while the FAA has done 14% of its part. These numbers are up from 28% and 9%, respectively, when the company announced results for the first quarter of 2024.

Management has also made some moves internationally. In Australia, for instance, they applied for their aircraft to be certified for use. According to a bilateral agreement between Australia’s Civil Aviation Safety Authority and the FAA, once the FAA approves Joby Aviation’s aircraft, subsequent approval and Australia should come relatively easily. The firm has also signed an MOU with a company in Saudi Arabia to introduce its aircraft there when the time is right. The company also continues to focus on ramping up production. During the second quarter of the year, it finally achieved flight for its second aircraft. And also during the quarter, the company put out its third production prototype aircraft from its assembly line. Next quarter, management believes that it should have in aircraft in active test flight.

This is great and all. But there are some problems. The first is that, if the company is to ever truly scale in order to be a viable, thriving company, it will require a tremendous amount of capital. In the chart above, you can see how the firm’s net cash position has changed over time. By the end of the first quarter of this year, the company was down to $923.9 million in net cash. And by the end of the most recent quarter, net cash was $825 million. Over the same window of time, we have seen share count continue to grow. This results in shareholder dilution.

Another issue is the fact that, even once the company begins scaling, it will have to generate significant amounts of cash flow in order to just be fairly valued. In the chart below, you can see how much adjusted operating cash flow the company would need to generate in any given year to be valued at either 10 times, 15 times, or 20 times, on a price to adjusted operating cash flow basis. That chart also shows the same thing regarding EBITDA using the EV to EBITDA approach. Even if we assume that the company would be capable of generating adjusted operating cash flow margins or EBITDA margins of 10%, we would be looking at revenue requirements well in excess of $1 billion and maybe as much as $3.5 billion. It could take years for the business to reach that point. And in the meantime, investors will have to deal with dilution and risks that come with owning an early-stage business.

Takeaway

Operationally speaking, I’m a big fan of what Joby Aviation is trying to accomplish. In addition to being good for the environment, the technologies that the company has had the potential to create a more efficient and safer world. However, the firm does have plenty of big challenges ahead for it. It is making progress and its cash position gives it a great deal of flexibility for the moment. But that is dwindling away while shareholders become increasingly diluted. Because of the speculative nature of what is going on, the best that I can rate the company is a ‘hold’.