Key Points

• Joby is buying Blade's air mobility business for up to $125 million.

• The news added nearly $3 billion in market cap to Joby.

• The eVTOL company is still not earning material revenue.

• 10 stocks we like better than Joby Aviation ›

Joby Aviation (NYSE: JOBY) delighted investors on Monday when it announced the acquisition of Blade Air Mobility's (NASDAQ: BLDE) passenger business. The move gives Joby ownership of what might be the best-known brand in the urban air taxi mobility market.

According to the terms of the deal, Joby will pay Blade in up to $125 million in a combination of cash or stock, according to Joby's choosing. The move will give Joby immediate market access in New York City and Southern Europe, as well as ownership of a business that flew more than 50,000 passengers in 2024, primarily in the New York City area.

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Investors loved the agreement, sending Joby stock up 18.8% on Monday, which represented a $2.7 billion gain in market cap. For a price of $125 million, that's an incredible return on investment, at more than 20 times.

However, investors seemed to have second thoughts about the deal on Tuesday, as both stocks pulled back following Blade's second-quarter earnings report. Joby was down 5% in afternoon trading on Tuesday, while Blade, after jumping 17.2% on Monday, was down 10.8% at the same time.

Are investors reading the deal correctly here? Let's take a closer look.

Image source: Joby Aviation.

What Blade means for Joby

It's easy to see the appeal of Blade for Joby and its investors: Blade has an existing urban air taxi network. Joby wants to launch them.

The deal does not include Blade's medical division, which will remain a separate publicly traded company renamed Strata Critical Medical, but the two companies are partnering in the medical transportation field, as Joby will become Blade's preferred VTOL partner for Blade's organ transport business.

However, there seems to be a disconnect between the $125 million price that Joby is paying Blade and the nearly $3 billion boost it got in its market cap. The fact that Blade stock jumped also indicates that Blade investors believe they got a good price in the sale.

Blade's second-quarter earnings report indicates why the company didn't value the air taxi business very highly. In the second quarter, revenue fell 13.2% to $25.7 million, due in part to its exit from the Canadian market, and the short-distance segment, which appears to be what Joby is most interested in, also saw reduced demand due to a helicopter accident in New York in April.

Passenger segment adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) improved from $0.8 million to $2.4 million, though that doesn't include corporate costs.

Are eVTOL stocks in a bubble?

While the Blade deal makes sense for Joby, as it will help boost its ambitions in the urban air taxi market, the market's reaction seems unjustified and is just the latest evidence that electric vertical takeoff and landing (eVTOL) aircraft are in a bubble.

Joby is still a development-stage company with no material revenue, yet its market cap has ballooned to more than $16 billion. That makes it more valuable than both American Airlines and Southwest Airlines, two well-established, profitable airlines. In fact, they're two of the four biggest airlines in the country.

By bidding up stocks like Joby and Archer Aviation, investors seem to be grossly overestimating the market for air travel and the profit potential in the industry, as Blade's relatively small size shows.

Blade's experience also shows that the constraints to scaling an urban air mobility business aren't the advanced technology that eVTOLs provide, such as being emission-free, quieter, or safer, but price and access, which doesn't really change going from a helicopter to an eVTOL. For comparison, a Blade ride from Manhattan to JFK Airport starts at $195 per seat, meaning it's not price-competitive with a taxi, rideshare, or another form of transportation.

With its market cap now at $16 billion, high expectations are baked into Joby Aviation stock even though it's barely made a sale.

Investors seem to be taking the wrong lesson from Blade here. Yes, the helicopter operator could help Joby, but it failed to disrupt urban transportation. The same is likely to be true for Joby.

Should you invest $1,000 in Joby Aviation right now?

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Southwest Airlines (NYSE: LUV) has not yet seen a rebound in demand for travel, disappointing investors who had been hoping for a quick turnaround.

Southwest shares fell as much as 4.5% when comments were made by the company's CFO before rebounding somewhat and trading down 1% as of 2:30 p.m. ET.

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Image source: Southwest Airlines.

Discretionary spending takes a dive

Airline stocks are highly cyclical in nature. When budgets get tight, it is easier to skimp on travel than the grocery bill, meaning airlines tend to see demand fall when the broader economy is under pressure.

Several airlines withdrew or scaled back full-year guidance during earnings season, complaining of a surprise collapse in demand late in the first quarter. There was some hope the collapse would be short-lived.

Southwest CFO Tom Doxey, speaking Thursday at a Wall Street conference, said, "We have not seen in the industry an inflection back" toward more robust demand. Doxey said unit revenue in the first quarter was about three points worse than what they had expected heading into 2025, and second-quarter unit revenue is trending toward about six points worse than what was expected.

That's not good news, and there is some reason for investors to worry it is a Southwest-specific issue.

A day earlier, United Airlines Holdings said it was seeing a "stable" revenue and booking environment heading into the busy summer travel season.

Is Southwest Airlines a buy?

Investors shouldn't make too much of the Southwest/United comparison, as they were slightly different questions, but Southwest could indeed be a standout to the downside.

The company is early in the process of revamping its business model, including getting rid of popular features, including free checked bags. Although Southwest said it has not seen a consumer backlash so far, it is possible consumers are booking elsewhere.

Even in the best-case scenario, Southwest is a company in transition during a dangerous period for the industry. Investors have every reason to be cautious as the summer travel season plays out.

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Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool recommends Southwest Airlines. The Motley Fool has a disclosure policy.

Airlines are among the most discretionary sectors out there, tied closely to the health of the consumer. So, perhaps it is no surprise that the stocks are seeing an oversize reaction to reports suggesting key parties are moving to de-escalate the trade war gripping the U.S. economy.

Shares of JetBlue Airways (NASDAQ: JBLU) traded up 10% as of 10 a.m. ET, and shares of United Airlines Holdings (NASDAQ: UAL), Delta Air Lines (NYSE: DAL), American Airlines Group (NASDAQ: AAL), and Southwest Airlines (NYSE: LUV) were all up more than 5%.

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Clear skies up ahead?

We are only halfway through airline earnings season, but the message from the companies that have reported is clear: The industry is not seeing a dramatic fall-off from near-record demand, but executives are anticipating declines in demand should tariffs eat into the economy and cut consumer purchasing power.

Historically, airlines have been a bad sector to invest in during a recession. Households struggling to pay bills and afford groceries are unlikely to book vacations.

On Wednesday, investors were buying in hopes a worst-case scenario could be avoided. The market is up big on reports that the White House is mulling cuts to steep tariffs on Chinese imports, a move that could lessen the blow on consumers and lower the odds the U.S. falls into a recession in the second half of 2025.

Is now the time to buy airline stocks?

Investors should proceed with caution from here. The market has been volatile of late, trading up and down based on the latest tariff headlines. It is dangerous to try to get ahead of rumors, and until there are actual moves to de-escalate, it is possible these gains could evaporate just as quickly as they materialized.

For those willing to accept the turbulence and look past whatever near-term noise might be on the horizon, Delta and United are the safest investment choices from this group. JetBlue and American have relatively high debt burdens and questions about their revenue models, and Southwest is in the process of eliminating consumer-friendly policies and could see a backlash in the quarters to come.

United execs sounded an optimistic tone about the quarters to come even with the headwinds the airline is currently facing. If those headwinds recede, the airline looks best-positioned to gain altitude from here.

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Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool recommends Delta Air Lines and Southwest Airlines. The Motley Fool has a disclosure policy.