Cramer’s Latest Prediction: Sell Joby Aviation (JOBY)

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Joby Aviation (JOBY), the market leading eVTOL manufacturer, has found its way into Cramer’s lightning round. On Friday September 15th, 2023, Cramer said “we’re not recommending any companies that are losing money hand over fist like Joby. I’m going to say that you should sell, sell, sell.”

It’s well known that market participants should take Cramer’s predictions with a grain of salt because he’s incredibly inaccurate, as evidenced here. Nevertheless, let’s take a look at JOBY, a company whose stock is up 95% YTD and 13% over the last year.

An Update on JOBY

While it’s true that JOBY missed its last 2 earnings reports, by 183% and 22% respectively, the company has made great progress. In June, the company produced the first prototype of its S4 eVTOL aircraft to be built on its pilot production line in Marina, California. This particular feat was an industry first for an eVTOL manufacturer and proved that their process for assembly is functional. 

As for cash burn, Cramer’s primary concern, most of JOBY’s $286 million net loss in Q2 was due to an unfavourable re-evaluation of derivative liabilities to the tune of -$181 million. Derivative liabilities are derivatives held for trading and/or hedging and are unrelated to the operating expenses of a business. JOBY’s operating expenses in Q2 amounted to $116 million (primarily for the continued progress of certifying its aircraft and manufacturing operations) and interest income was $11 million. Outside of the derivative liability re-evaluation to the downside, the company’s Q2 wasn’t all that bad. 

To go further, JOBY also raised $280 million in funding from Baillie Gifford and SK Telecom which helped strengthen its cash (and equivalents) to $1.2 billion. The bottom line is that cash burn isn’t necessarily a problem for a young company as long as the cash is being used effectively. When JOBY uses cash to certify its aircraft and manufacturing process, it’s a good investment. When they use cash to buy a second manufacturing facility, it’s a good investment. This type of cash spending is going right back into the business to help secure their market position and grow into the future.

Market participants, including Cramer, should worry less about how JOBY uses its cash because it’s being used wisely and they can raise additional cash rather easily. The EV boom and favourable regulation is a significant tailwind for JOBY and that is evidence by their prowess in certification, manufacturing, and stock performance. Lastly, JOBY’s quick ratio, a measure of a company’s ability to meet its short term liabilities, is standing at a strong 27. This means that the company has enough cash on its balance sheet to pay its current short term liabilities 27 times over, who’s worried about cash burn?

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