Volta (VLTA) is a San Francisco-based developer of electric vehicle (EV) charging stations. Volta runs a differentiated business model in the EV charging network niche by combining its EV charge points with on-site video advertising to monetize them. Volta went public in late August 2021 after successfully completing a SPAC transaction with Tortoise Acquisition Corporation II.
There are several catalysts now that can support Volta’s business operations and expand its network of EV chargers. I am bearish on VLTA stock. It is not only an unprofitable company, but I also consider it to be richly valued now in a very competitive market. (See Analysts’ Top Stocks on TipRanks)
Volta Key Business Highlights
In November 2021, Volta announced the launch of its Volta Media™ Network, connecting advertisers with consumers focusing on brands advertising, delivering measurable business results, and supporting an environmental impact as “to date, Volta has offset 44 million pounds of CO2 and delivered 100 million electric miles.”
Other notable news includes the partnership with Cinemark Theatres to provide EV charging to moviegoers, a partnership with Topgolf Entertainment Group to add EV charging stations to additional venues in the U.S., and a partnership with Six Flags Entertainment Corporation to provide EV charging to its guests at their parks across the U.S.
Volta has been very active in strengthening its list of partners to fuel its present and future growth. After all, the Volta business model relies on three pillars, Network Development, Charging Operations, and Behavior & Commerce.
The Volta Model
The first pillar in Volta’s business model is Network Development. It is based on high-traffic/high-visibility, premium partner locations with revenue generated from public and private network investment opportunities, rebates, and tax credits. The second pillar is Charging Operations, with multiple revenue streams such as pay per use, idle fees, managed services.
Behavior & Commerce is the third pillar providing network monetization that is independent of EV adoption or advertising revenue.
In its Q3 2021 earnings report, Volta reported revenue that grew 77% year-over-year to $8.5 million, compared to $4.8 million in the prior-year period. The core part of this revenue growth was attributable to strong growth within Behavior & Commerce. With about $7.4 million reported in revenue for the Behavior & Commerce category, it totaled around 87% of revenue.
Volta announced that “total stalls connected at September 30, 2021, were 2,137, representing a 50% year-over-year increase”.
The net loss for Q3 2021 was $43.1 million, compared to a loss of $14.5 million in the prior-year period. EBITDA reported was a loss of $38.3 million compared to a loss of $9.5 million in the prior-year period. These negative numbers raise concerns as Volta is expanding its network of EV chargers quickly.
Major Risks Volta Is Facing Now and a Key Positive Factor
The first risk is the stiff competition from other companies such as ChargePoint (CHPT), EVgo (EVGO), and Blink Charging (BLNK). All these companies invest heavily in capital expenditures to build their EV charging infrastructure, which should not make us forget the high costs associated with the business model. Maintenance costs, upgrades, and state regulations are severe risks.
It is still too early to evaluate potential economies of scale as the EV charging companies are investing to gain a large sustainable market share in the new chapter of electrification in mobility.
The $7.5 billion for EV charging stations contained in the infrastructure bill is a very positive “gift” by the U.S. government. However, this is not a simple race for Volta to gain a market share; it is a marathon. To win in a marathon, strategic thought and implementation are required.
Investors now seem to ignore the fact that even though shares of Volta have losses of about 21% in 2021, they are not cheap. VLTA stock is overvalued based on its price-to-book ratio (4.8x) compared to the U.S. specialty retail industry average (2.7x).
In the Q3 2021 earnings report, Volta mentioned that for the full-year 2021, it expects revenue in the range of $32 million to $36 million. Assuming the upper target is reached, then with a current stock price of about $8.40 and a market capitalization of $1.44 billion, the market cap/ total sales ratio is 40x, which is too high for a company that went public only a few months ago.
As per its latest presentation, Volta expects to report positive adjusted EBITDA of $31 million in 2023.
Wall Street’s Take
Volta has a Strong Buy rating based on three Buys ratings assigned in the past three months. The average Volta price target of $14.00 represents a 65.9% upside potential.
Disclosure: At the time of publication, Stavros Georgiadis, CFA did not have a position in any of the securities mentioned in this article.
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