The Market has the Story Wrong, Luxury is Essential - Blade Air Mobility (BLDE)
"The price is wrong..."
“The price is wrong, bitch” - Adam Sandler as Happy Gilmore
First and foremost, I apologize for any abruptness in my writing this week, I have been sick, but as a man of the people, I knew I couldn’t let the man flu stop me from publishing on time… Plus it’s MLB’s Opening Day tomorrow so I will be out of office in very important meetings taking place in my entertainment room.
I thought I’d have more time before I wrote my next research piece, but alas, news from another one of my favorite long-term investments broke recently. The only thing better than good news is good news that the market is mispricing and/or ignores. So, after all this time, Happy Gilmore was right…
To be clear, this is a family-friend Substack, but that was a layup.
Anyway, when news breaks in a market environment like the one we are currently in, it is very unusual for me to pay it much mind because the bar I set for names, especially growth names, is exceptionally high. The reason the bar is high is primarily due to the adolescent nature of the companies I have on my long-term, high-conviction list. But as they say, when opportunity knocks, you better answer.
Additionally, I decided that after the Enovix piece, which seemed to have had a very positive response, I thought it would be better to write reports that are more detailed rather than piecing together a few short articles here and there. That’s not to say that I won’t put my thoughts on the market out, but I think there is significantly more value in publishing longer form pieces that invite discussion. I also don’t want to bore everyone to death by writing less impactful pieces, which could have negative effects on readers who think I’m writing just to write.
Finally, I know we all have busy lives and limited bandwidth, so I want to keep these pieces less than 2,500 words. A comprehensive report would easily reach 5,000+ words so I invite whoever is interested to reach out directly to talk further. As a reminder, these pieces will soon be placed behind the paywall so I wanted to thank the 20+ readers who made the switch from free to paid after the Enovix report, it means a great deal.
Key Statistics
Price: $2.86/Share
Shares Outstanding: 75.13mm
Market Cap: $214.1mm
Enterprise Value: $69.5mm
Current Ratio: 5.8x
Total Assets: $294.9mm
Total Current Assets: $206.3mm
Total Liabilities: $60.6mm
Total Current Liabilities: $35.5mm
*As of the cash close on 3/27/2024 - BLDE Financials as reported for Q4 2023
Company Overview
Blade Air Mobility (BLDE) provides air transportation and logistics for hospitals across the United States, where it is one of the largest transporters of human organs for transplant, and for passengers, with helicopter and fixed wing services primarily in the Northeast United States, Southern Europe and Western Canada. Based in New York City, Blade's asset-light model, coupled with its exclusive passenger terminal infrastructure and proprietary technologies, is designed to facilitate a seamless transition from helicopters and fixed-wing aircraft to Electric Vertical Aircraft (“EVA” or “eVTOL”), enabling lower cost air mobility that is both quiet and emission-free. Source: Blade Investor Relations
MediMobility Organ Transport: Transportation of human organs for transplant and/or the medical teams supporting these services. Blade also offers additional services including donor logistics coordination and support evaluating potential donor organs.
Short Distance: Consisting primarily of helicopter and seaplane flights in the US, Canada and Europe between 10 and 100 miles in distance. Flights are available for purchase both by-the-seat and on a full aircraft charter basis. NYC to Montauk, NYC to the Hamptons, etc.
Jet & Other: Revenues primarily from non-medical jet charter and ‘by-the-seat’ jet flights between NYC and South Florida, revenue from brand partners for exposure to Blade fliers and certain ground transportation services.
Summary
When it comes to investing, I’ve learned that sometimes what qualifies as “luxury” is also a necessity. In the case of Blade (BLDE), the company operates and serves those at the top of the socioeconomic ladder, as well as provides necessary medical services as it relates to the logistics, support and transportation of organs for transplants. Blade, which was founded in 2014 as an urban transportation solution for the rich, has quickly seen its largest operating segment become a necessary service for the healthcare industry.
While on the surface, Blade may come across as the epitome of the easy money policy that we have endured the past 15+ years, if one were to take a deeper look at the company, what they’d find is an asset-light transportation company whose primary revenue stream is non-cyclical and provides a societal good. Not only is their primary revenue segment non-cyclical, it is also insulated by significant barriers to entry that the healthcare industry is innately fond of.
It took me a while understand that although markets are efficient, they are not infallible. In Berkshire Hathaway’s 1987 Investor Letter, Warren Buffett introduced us to a quote that has stood the test of time, one he took from his mentor, Benjamin Graham,
“Over the short-term, the market is a voting machine, but over the long term it’s a weighing machine.” – Benjamin Graham
There are countless times in which I left a trade early thinking I was wrong because price moved against my sentiment, rather than checking my hypothesis again before changing my positioning. Although Benjamin Graham never experienced markets with algorithms trading billions of dollars of shares and multiples of that in notional value in options and derivatives, what he always had right was that in the short term, markets are a voting machine.
I bring this up because I strongly believe that the market has misunderstood the Blade story and wrote it off as company serving a niche market rather than understanding what the company actually does. In turn, the market has taken Blade at what it used to know the company as and voted against buying the stock. This is both beneficial for my cause, as it is detrimental. For those of us with scars, we understand that being early is the same thing as being wrong, so I want to be clear when I say that I view Blade as a long-term story.
The primary reason I view it as a long-term trade is because I have a feeling that the market is going to take a long time to realize what Blade actually does compared to Wall Street’s current perception of the company. The catalyst will come in the form of earlier than expected profits, a continuous rapid ramp in revenue and/or explosive margin expansion. That, or the company is bought cheap by another transport company that sees exactly what I do, but I’m hoping the former happens first to increase my ROI.
So rather than hope that I’m timing the trade right, I’ll continue buying when the stock price falls in correlation with other SPAC stocks. I mean, the company announced a $20mm short-term buyback that would remove ~9.4% of the float only last week while 6% of the shares outstanding are sold short… Yet, since the news broke, BLDE has given up a good portion of those gains. Can someone explain to me why a company trading at less than 1.0x on Price/Revs, Cash and Book and has news like that on the wire is trading down? Anyone? Bueller?
The answer to that is diddly squat. What is valuable is writing about long term investment ideas so that you can take what I write, do your own research and then decide to get long, get short or ignore whatever it is I have to say. It’s your choice. The reason I am excited about Blade (BLDE) is not because of something imminent, - although I do love the $20mm buyback - but because of the prospects the company has over the coming years. With that being said, let’s get into it.
Reasons I am Bullish
Announced a $20mm share buyback last week, which is equivalent to ~9.4% of outstanding market cap at the current price of $2.86/Share.
Asset-light business model that allows Blade to continuously scale margins as the company grows operating segments.
Operating segments that operate and serve different socioeconomic clientele, leading to a more dynamic business model.
Resilient balance sheet that has 79% of IV in net cash, as well as almost zero debt, allowing the company to utilize leverage as management sees opportunities for future growth. Current ratio of 5.8x, net cash of $166mm (as of 12/31)
Enterprise Value of $69.5mm…
Overview
Founded in 2014 and based in New York, New York, Blade (BLDE) has become a leader in the Air Mobility industry as a result of the company’s operational prowess and asset-light business model. The company’s ability to utilize aircraft that are primarily owned and/or operated by third-parties on Blade’s behalf has given the company operating leverage in their existing segments, while also giving them flexibility to cross over into other Air Transport-related verticals as management sees fit.
Before the company was founded in 2014 by Rob Wiesenthal and Steve Martocci, Blade was an idea years in the making. While serving as Executive Vice President and Chief Financial Officer of Sony Corporation of America, Blade’s Co-Founder and CEO, Rob Wiesenthal, had an idea that would become what is now Blade. I won’t bore you with my summary of the story, but Bloomberg published a great piece about the story of Blade in 2019.
Blade’s business model is not complex, which is one of the beautiful things about the business. Since its inception, Blade’s business model was designed to create significant operating leverage once it reached economies of scale. As such, Blade leverages an asset-light business model, where the company primarily utilizes aircraft that are owned and/or operated by third-parties on the company’s behalf. This arrangement allows Blade to pay fixed hourly rates to the company’s network of operators, who, in turn, bear the cost of pilots, aircraft maintenance, fuel and insurance. In addition to the fixed hourly rates, Blade also purchases minimum capacity agreements, which also include flight volume guarantees.
Similar to Enovix, I can once again hear you all now, “Tom, isn’t this just Uber, but for the ultra rich?”
Yes, yes it is, but that is exactly why the market has mispriced the company. See, Blade started as an Uber of sorts, but that’s the old Blade. The new Blade is now led by it’s MediMobility Organ Transport business.
Blade’s MediMobility Organ Transport is not only non-cyclical in nature, but it provides a societal good and Blade continues to garner market share at a rapid pace. The operating segment finished 2023 with revenues of $126.6mm, which equates to growth of +76% YoY growth and 56% of total revenue for the year. As a percentage of total revenue, MediMobility Organ Transport has gone from 22% and 49% of total revenue in 2021 and 2022, respectively. What’s even more impressive – MediMobility revenue was ~$20mm shy of BLDE’s 2022 Total Revenue of $146.1mm. Chart below:
Here is a screenshot of annual revenue with the percentage of total revenue contributed by MediMobility broken out:
Now, I could write a full report strictly on the operating leverage within the MediMobility Organ Transport revenue segment, but rather than doing that, I point you to this chart, which is pulled directly from Blade’s Analyst Center:
As you can see, not only is the MediMobility segment of Blade’s revenue growing hand over fist, margins are also expanding with minimal deviation, unlike the Passenger segment, which is highly correlated to economic inputs and other factors that MediMobility is insulated from.
Investment Thesis
In short, Blade’s investment thesis is based on three primary facets:
Short-term: $20mm buyback that would remove ~9.4% of outstanding shares at current prices
Long-term: Exceptional management team with a balance sheet that can withstand years of continuous growth, M&A and R&D.
Buy Out Potential: If the MediMobility Organ Transport business continues to grow the way that it has, I see no reason as to why Blade wouldn’t continue investing in the business. On the other hand, there are plenty of transport companies who would love to buy out a company on the cheap and have access to an established infrastructure with flight margins in the high-teens that the buyer could roll-in to their established transportation infrastructure to further reduce costs, in turn, improving margins.
Valuation
Management has guided towards breaking even in 2024 on an adjusted basis, which is almost a year earlier than expected. This is mostly in part due to the rapid growth of the MediMobility Segment, which I think should be the only aspect of the business one focuses on. Once the market figures out that Blade is not just for the rich, but it is actually a societal good with its claws dug into the world of insurance, hospitals and our ass-backwards healthcare system, the Street will be all over this.
As for institutional ownership, Blade is currently at a point where institutional ownership is going to be limited because they cannot get in in size and they can’t enter/exit the position without significantly affecting the stock price. If and once stock climbs to a $500mm+ market cap, expect further institutional ownership, further stock and debt issuance and options activity to create more volume around the name.
Conclusion
All-in-all I love what Blade has done in their few years as a public company post-SPAC. Wiesenthal has done a great job at the top and the best part for me is that he is quiet about it. I’m more than happy to wait for the Street to recognize the opportunity that Blade presents because that means I get to buy more.
By the way, I didn’t even mention that I’m essentially buying stock for cash-in-stock with how strong their balance sheet is. Let’s hope the board can pull this buyback off here sub $250mm market cap.
Additional Links
Disclosure: The information provided in this report is for informational purposes only and should not be interpreted as financial advice. It represents the opinions of the authors based on their analysis at the time of writing and is subject to change without notice. We recommend consulting with a qualified financial advisor before making any investment decisions based on this report.