Volta Stock Valuation Isn’t Appealing, Neutral (NYSE:VLTA)

Volta Free EV charging station in parking lot. Power to the electric vehicle concept.

Evgenia Parajanian/iStock Editorial via Getty Images

Despite several warnings regarding the EV charging station space, Volta (NYSE:VLTA) appeared the most promising business model in the sector. The company recently announced surprising executive leadership changes and the other shoe dropped at month end with a major warning. My investment thesis remains Neutral on the stock now waiting for a corporate update to better analyze any future move.

Tough Model Gets Harder

Even liking the business concept of Volta, the company had a tough business model. What the EV charging business couldn’t afford was a major setback.

Last week, the company announced a surprise executive transition with founder and CEO Scott Mercer stepping down and resigning from the board. In addition, co-founder and President Chris Wendel resigned from the company and board leaving a major vacuum in executive leaders.

The stock was below $5 and down 50% from the SPAC transaction price, but the company was generally on plan set out for the business. Revenues did miss estimates, but a lot of the issues appeared more related to installation delays of new charging stations.

The surprise news of the founders leaving the company wasn’t a good indication that the business was doing well. This week, Volta dropped the other shoe with the delay of the quarterly report filing for Q4’21 and a huge cut to Q1’22 and 2022 revenue targets.

The company suggests revenues will only reach up to $8.5 million in Q1’22 versus analyst estimates up at $16.1 million. The updated 2022 revenue target is ~$75.0 million while the consensus estimates were up at $88.4 million.

Volta Revenue Estimates
Data by YCharts

In essence, Volta is now forecasting to miss Q1’22 targets by ~$8 million while the full-year number will only miss targets by $13 million. The numbers just don’t add up with a general prediction the EV charging station company reports substantial growth during the year with Q4’22 revenues approaching current targets of nearly $29 million. Besides, the lack of a revenue warning when announcing the executive leadership changes just 3 days prior isn’t going to provide much confidence to the market.

Volta forecasts adding an incremental 1,700 to 2,000 connected charging stalls in 2022, but the company didn’t provide any details on why revenues are declining sequentially and missing targets. The company only has ~2,300 stalls in service now and Volta vaguely blames growing scale and seasonal media revenue patterns impacting the business.

One of the biggest concerns with the business model was the ability to scale the media network. My previous research hammered away at the risk to the business of reporting over $38 million in quarterly EBITDA losses when just reporting revenues of $8.5 million. The numbers provided no flexibility for Volta to miss financial targets.

For Q3’21, Volta had quarterly operating expenses of $29 million. The company has to now convince the market revenues will rebound in the 2H’22 in order to cover these expenses. In the meantime, the EV charging station specialist is eating millions in quarterly losses with a precarious cash position of $331 million as of last September 30 and definitely much lower now in April.

In addition, the executive leaders needed to turn around the business aren’t even hired yet. A move to restructure the business by new executives could set back the sales cycle. A lot of such turnaround attempts in aggressive growth companies just upset the apple cart and lead to lower sales while cutting costs.

Can’t Touch

Despite the dip to $3 now, Volta isn’t a stock investors should buy. The market cap is down to $520 million, but the company is burning a ton of money and has consistently missed financial targets.

As a SPAC deal, Volta still has a lot of warrants and stock options in play here. The company and market didn’t expect to see a lot of these stocks trading this far below $10 after months of being public.

A general assumption was that the warrants would be exercised to provide additional liquidity and the share count would naturally end up at the higher level. After the end of Q3’21, Volta had a total of 24 million warrants still outstanding with the public and private warrants having an exercise price of $11.5 while the common stock warrants are down at $1.31. The company has nearly 15 million stock options with a weighted-average exercise price of $3.14 plus RSUs at a much higher price.

Volta shares and warrants

Source: Volta Q4’21 10Q

Without the warrants exercising at $11.50 (once seen as a SPAC weakness) to raise ~$165 million, Volta could now need to raise additional funds at these depressed levels.

Takeaway

The key investor takeaway is that investors interested in the EV charging station sector should watch Volta from the sidelines. The company needs to better explain the executive departures and corresponding revenue shortfalls before the story becomes interesting again, even with the stock down at $3.

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