On Sept. 14, SPAC Atlas Crest Investment (ACIC) shareholders approved its merger with U.S. air taxi developer Archer Aviation. The redemptions amounted to 48.5 percent. The merger will take effect on Sept. 16, while the combined entity will start trading under the name Archer and the ticker "ACHR" on the NYSE on Sept. 17. What is Archer Aviation’s forecast after the merger?
Archer is developing a four-passenger eVTOL (electric vertical take-off and landing) aircraft. The company sees the urban air mobility industry as a $1 trillion market opportunity.
About the Archer and ACIC merger
As part of the deal, Archer was set to receive $1.1 billion in gross proceeds, including $600 million in PIPE investment. However, after the merger approval and redemptions, the company will receive $857.6 million in gross proceeds.
Short squeeze potential
One of the key catalysts in the short term for Archer Aviation could be its short squeeze potential. According to S3 Analytics data on Sept. 14, 11.63 million shares of ACIC were sold short, which amounted to 23.35 percent of the free float. However, after redemptions and considering the same amount of shares shorted, the new short interest shoots up to about 56 percent of the float.
Air taxi space heating up
The air taxi space is heating up with several air mobility startups going public this year. One of Archer’s peers, Joby Aviation went public in August when it merged with SPAC Reinvent Technology Partners (RTP). However, Joby’s stock price performance has remained weak and the stock has declined by nearly 40 percent since its closing price on debut day. Another eVTOL company is Lilium, which intends to go public through a SPAC merger with Qell Acquisition Corp.
According to Allied Market Research, the global air taxi market is expected to grow to $6.63 billion by 2030 from $817.5 million at a CAGR of 26.2 percent. The electric segment will be the highest contributor with $329.28 million in 2021. It's expected to reach $3.39 billion by 2030 at a CAGR of 30.4 percent during the forecast period.
Archer Aviation’s valuation
It's difficult to value companies that are in disruptive industries and many years away from making their first revenues, let alone profits. There are too many uncertainties and execution risks that could derail the whole valuation paradigm. However, based on the information available, including estimates, we’ll try to make the best guess.
As a part of the revised deal between Archer and ACIC, in July 2021, Archer’s EV was cut to $1.7 billion from $2.7 billion previously as investors cooled down on the idea of air taxis. The overall negative sentiment around SPACs likely also led to the cut.
Archer doesn’t expect meaningful revenues until at least 2024 and sees revenues topping $1 billion in 2025. These estimates depend on FAA certification. Going by Archer’s 2025 revenue estimates, its EV-to-2025 sales multiple comes out to be 1.63x. In comparison, Joby Aviation and Lilium (Qell) have multiples of 6.0x and 1.8x, respectively.
Is Archer Aviation a good investment?
In February, Archer mentioned that United Airlines committed to purchasing its aircraft. The airline has placed a $1 billion order with Archer for air taxis and has an option to buy an additional $500 million of aircraft. United Airlines intends to use air taxis to shuttle passengers to and from the airport.
Since the sentiment for SPACs and EVs, including air taxis, is at a low, it might be a good time to pick stocks with strong long-term disruptive potential. Archer Aviation could fit the bill.