Experience Investment (NASDAQ:EXPC), a blank check special purpose acquisition corporation announced a very interesting reverse merger deal on Dec. 15 with Blade Urban Air Mobility. As a result, EXPC stock is likely worth at least 54% more than its present price.
The market seems to agree with me about this as well. For example, EXPC stock rose to $14.88 from its IPO price of $10, a gain of 48.8%. Moreover, since Dec. 15, when the deal was announced the stock is up over 40%. However, I believe that it has much further to go.
When the deal closes sometime in the first half of 2021, the merged company will have a new symbol, which is not yet identified. Until then I will call the company Blade.
What Blade/Experience SPAC Does
Blade is an urban helicopter service. They expect to expand into eVTOL services in the future. That term stands for electric Vertical Take-Off and Landing aircraft.
Think of a large drone capable of flying passengers using electric motors for the blades. Blade seems to think that is going to happen in the near future. The slide presentation for the Blade/EXPC stock SPAC merger discusses this at length.
Meanwhile, more people fly helicopters in and out of U.S. city centers via Blade than any other company in the world. In addition, Blade is the largest transporter of human organs in the northeast United States. This business is a critical part of the company’s growth strategy as organ movements are expected to be one of the first uses of eVTOL, before flights for passengers.
But at its heart, Blade is simply a technology company, an app for ride sharing on helicopters, especially in the northeast U.S. Think Uber (NYSE:UBER) or Expedia (NASDAQ:EXPE), except for helicopters. Blade’s presentation indicates that its total addressable market is estimated at $1 to $2 billion annually.
However, That is going to take some time to work out. For example, on page 30 of its presentation, Blade estimates its revenue in 2020 will be $25 million and could reach $52 million in 2021.
Moreover, by 2023, Blade estimates revenue will reach $181 million and $402 million by the end of 2024. This is all still before significant revenues occur from eVTOL which the company calls Phase 3 starting in 2025 and 2026. It does not assume any passenger eVTOL revenue before then.
But in Phase 3, revenue is forecast to skyrocket to $601 million in 2025 and $875 million in 2026. Of course, those numbers are pure fantasy I think, since there really is no way to judge when eVTOL with human passengers will commence, if ever, this decade.
What Blade/EXPC Stock Is Worth
Therefore, using 2024 estimates we can measure where the stock is valued by the market. For example, on page 34 of the presentation, the closing transaction indicates there will be 82.5 million shares outstanding.
Therefore, the pro forma market capitalization is $1.228 billion. In addition, to derive the pro forma enterprise value, we can deduct the cash that results from the closing merger transaction. This amounts to $375 million. Therefore, the pro forma EV is $853 million.
Now, since the company estimates that there will be $402 million by the end of 2024. This means that the EV-sales ratio for 2024 is 2.12x sales. That is very low.
However, we need to adjust the 2024 numbers to derive their present value. For example, at a 15% discount rate for four years, the 2024 sales are worth 57.175% of this in today’s dollars. The present value sales number is $230 million (i.e., $402 million times 57.175%).
As a result, the adjusted EV-sales multiple is 3.7x (i.e., $853 million EV divided by $230 million). On page 36 of the presentation, Blade shows the EV-sales ratios of four groups of its peers.
For example, disruptive technology platforms have an average EV-sales ratio of 8.2x. In addition, luxury brands are at 7.5x, asset-light logistics companies are at 1.3x, and recent EV / SPAC mobility deals have averaged 6.5x. Therefore, the average of all four of these groups of stocks is 5.85x. Without the asset-light logistics group, the average is 7.4. Therefore, the appropriate metric is somewhere between 5.85x and 7.4x, or 6.6x.
This means that at 6.6x $230 million, the EXPC stock EV is worth $1.518 billion. In addition, after adding back the $375 million in cash, the target market value is $1.893 billion. That is 54.2% above today’s pro forma market cap of 1.228 billion.
In other words, EXPC stock is worth nearly $23 per share. That represents a very good return for most enterprising investors in SPAC deals these days.
On the date of publication, Mark R. Hake did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.