Joby Is Buying a Defense Company. Archer Plans to Buy 3 From Boeing. Here's Which Pivot Makes More Sense.
In August, Joby Aviation(NYSE: JOBY) said that it was on track to acquire defense specialist Resonant Sciences in a $500 million, all-cash deal. The electric vertical take-off and landing ( eVTOL ) aircraft specialist announced that it was poised to raise $750 million in funding by selling new common stock.
The announcement of Joby's defense acquisition came almost immediately after Archer Aviation(NYSE: ACHR) said that it was acquiring three subsidiaries from Boeing. In exchange for a roughly 16.5% stake in its business after accounting for new stock issuance to fund the deal, Archer is on track to acquire the autonomous eVTOL specialist Wisk Aero, the air-traffic-management software provider SkyGrid, and the drone specialist Insitu from Boeing.
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The big pushes into the defense industry look to represent meaningful shifts for both Joby and Archer. Which pivots make more sense and are more meaningful for investors?
Defense industry wins look more important for Archer right now
While visibility into the evolution of the commercial eVTOL market remains limited, Archer appears to be further from achieving Federal Aviation Administration (FAA) certification. Archer maintains that it is actually ahead of Joby in receiving regulatory approval from the FAA, but Joby's completion of the type inspection authorization (TIA) for aircraft that could be ready to enter manufacturing complicates the picture.
Additionally, questions remain about when Archer will actually demonstrate piloted transition flight for its Midnight eVTOL aircraft. Although the company recently demonstrated a series of flights around San Francisco for its Midnight eVTOL aircraft, takeoff was achieved via a traditional runway lift rather than the vertical-lift-off-to-horizontal-flight capabilities central to the aircraft category's value proposition.
Although assessing each company's positioning involves a go0d deal of guesswork at this point, competitive dynamics in the commercial eVTOL market currently appear to favor Joby. As a result, broadening product offerings and capitalizing on opportunities in the defense sector look even more important for Archer's business. Along with the company's pending acquisition of three subsidiaries from Boeing, the Halo and Thunder hybrid VTOL aircraft that Archer developed through its partnership with Anduril represent important diversification initiatives.
Archer appears to be further away from launching commercially viable eVTOL aircraft for the consumer market. As a result, expanding its operations in the defense sector is even more important. On the other hand, that doesn't mean that the defense sector isn't important for Joby.
Joby also can't afford to ignore defense opportunities
Archer currently appears to be behind in the race to bring eVTOL aircraft to the consumer market, but diversifying its product line and growth opportunities also looks important for Joby. Even though Joby may be ahead of Archer in FAA certification, securing the necessary regulatory approvals may take significantly longer than investors currently anticipate.
The commercial viability of eVTOL flights in the consumer market remains untested, and the category could face very challenging economics. While both Archer and Joby have entered into manufacturing partnerships with major automotive companies that should make production significantly more efficient, the monetization outlook for eVTOLs in the consumer market is unclear.
JOBY PS Ratio (Forward) data by YCharts
Although Joby's forward price-to-sales (P/S) ratio of roughly 38 is far below Archer's forward P/S value of about 200.5, both companies have effectively purchased their sales rather than increasing them through organic growth. Joby's revenue this year is largely driven by its purchase of the Blade helicopter business, which is still transitioning to eVTOL flights, and Archer's revenue is largely driven by its acquisition of Hawthorne Airport in the Los Angeles area.
Neither Archer nor Joby is currently generating much revenue from their core eVTOL businesses. Both companies look poised to get sales increases from their pending acquisitions of defense-industry businesses. Still, again, neither company is at the point where strong sales performance in the commercial eVTOL market within the next few years is anywhere close to guaranteed.
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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .
Joby Is Buying a Defense Company. Archer Plans to Buy 3 From Boeing. Here's Which Pivot Makes More Sense. was originally published by The Motley Fool
