The Rundown – Your weekly SPAC Deep Dive (09/01/21)
Blade Air Mobility is Solving Global Traffic Congestion
Blade Air Mobility is an urban air mobility platform based out of New York City. The service allows users to book seats on scheduled flights throughout the Northeast and West Coast and also arrange private charter flights using its app.
Blade announced its SPAC merger with Experience Investment Corp, which led to shares rallying to $19.88 as the market greeted the company with excitement. But a broad selloff in SPAC target companies has resulted in a 65% correction over the last six months. Does the significant correction in the stock price imply a good entry point for new investors?
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Transforming Urban Air Mobility
Global Traffic Congestion is a problem that continues to get worse with each decade. US commuters are spending more time in traffic each year, while the problem is much worse outside the US. US customers now spend 40% of their total drive time stuck in traffic with traffic congestion estimated to be a $35 Billion problem. Blade Air Mobility (BLDE) aims to solve the problem of urban air mobility. Before BLDE entered the market, there were significant challenges including low capacity utilisation, long notice periods and expensive fares.
The helicopter operator market was also fragmented with no national helicopter company focused on individuals as they have limited range and have been more geographically focused compared to traditional airlines. BLDE’s technology enables flier aggregation, route determination and by the seat pricing using newer and smaller helicopters. BLDE’s fares are the cheapest on the market and beats Amtrak Acela’s peak pricing with a seat starting at $195, while the app makes it simple for anyone to book a seat in 20 minutes.
BLDE is able to increase operators volume, revenue predictability and reduce fixed costs by buying aircraft time by the hour while covering all costs associated with flights. BLDE ensures unit economics by fixing prices at discounted rates. Blade has the first movers advantage and a loyal customer base of over 40,000 annual fliers. The company estimates a total addressable market of over 27 million passengers in New York alone, which represents a $1 Billion revenue opportunity.
This makes the company the leader in the short-distance aviation market, which is expected to significantly grow as urban congestion escalates. BLDE’s asset light model and growing flier base will ensure that the platform expands its market reach. Essentially Blade is developing a brand in an industry that lacks strong brands. The company’s marketing could significantly expand the total customers in its key markets. A potential differentiator between Blade and smaller operators could be the potential difference in the safety standards.
Domestic & International Expansion Opportunities
Blade plans to significantly expand its reach over the next five years through expansions in the Northeast corridor market and the West Coast. The northeast market is expected to have a $2 Billion serviceable market with nearly 40 million passengers in cities such as Boston and Philadelphia.
In the West Coast, the market is significantly larger, with a $5 Billion opportunity addressing the needs of over 200 million customers. Apart from this, the company is pursuing international opportunities in India, Canada, Indonesia and Japan through various partnerships.
The company is expected to expand through significant investment of $300 Million over the next five years. This includes strategic infrastructure development in the Northeast Corridor, Infrastructure development in San Fransisco & Los Angeles and pursuing strategic expansion through routes and acquisitions.
In addition, the company is also looking to pursue accretive M&A opportunities by taking advantage of the current pandemic hit aviation market and has allocated $75 million to pursue the pipeline of opportunities on offer. The company is looking at targets in the short distance flier market to optimise and grow revenues in the next few years. BLDE’s proven asset light deal structure should enable it to de risk the launch of new routes.
Blade plans to expand operations by deploying its next generation electric vertical aircraft (EVA) at scale. Given low costs, low noise footprints and zero emissions, EVA are poised to supercharge Blade’s business while leveraging the company’s existing platform. Blade has already partnered with Airbus and Bell to develop its EVA In the future. Blade EVA is expected significantly improve its unit economics and drastically expand the addressable market of its existing products.
Blade now has over 167 EVA aircraft under development. The company’s extensive flier base and control of strategic infrastructure should enable it to secure a leading position in the future of Urban Air Mobility. EVA is expected to benefit from unit economics, especially as they are expected to be autonomous, making it far more scalable and lower cost compared to the average helicopter. BLDE estimates that it can get the cost per flight to $72 per seat by 2024.
Financials and Valuation
Blade continues to substantially grow the total number of passengers and its annual revenues. Since 2014, the number of passengers are up 31x and revenue has gone up 15x. The pent up demand for leisure travel is expected to be a key catalyst for growth in the short term. In addition to the ticket sales, Blade has the potential to make money from brand advertising to the thousands of people who fly Blade, which is similar to advertisement placement in Public Transit.
As volumes increase, the company’s infrastructure will be more valuable and advertising revenue could become more significant. BLDE is expected to significantly increase revenues from $25 million in 2020 to $402 million in 2024. Blade EVA is expected to significantly accelerate revenues, with the company projecting 2026 revenues at $875 and EBITDA at $326 million.
BLDE currently has a market cap off around $500 million, which represents a Price/Sales multiple of 10x for FY21. This is a significant premium over its on-road competitors like Uber and Lyft, which derive P/S of 5.66 & 6.19 but given that revenues are expected to scale quickly, this premium will disaster quickly. Ultimately the valuation of the stock will depend on management execution, the implications of the pandemic and the velocity of the cash burn based on the growth trajectory.
Blade could cut travel times drastically for millions of people around the world and solve the massive congestion problem. In addition, Blade has significant upside when you factor in growth through EVA and International Expansion. While the company is still richly valued despite a 65% correction, if the company can execute its strategy, there is significant room for upside.