Slow Government Procurement And AV Uncertainty Will Shape Transit Digitization Yet Ultimately Reward Patience

Catalysts

About Via Transportation

Via Transportation provides software and tech-enabled services that help governments digitize and manage public transit networks.

What are the underlying business or industry changes driving this perspective?

• Although public transit funding in the US has grown an average of 4% per year since 2012 and recent ballot measures have approved US$11.8b for transit projects, many agencies still face budget constraints that can slow new deployments or limit contract scope. This can temper revenue growth even as the funding pool expands.
• While digitization of public transit is progressing and Via currently addresses an estimated US$82b serviceable market with 63,000 potential customers, the company has only 713 customers so far. Converting even a small portion of the remaining agencies requires long procurement cycles and risk-averse decision makers, which can delay new revenue and earnings contributions.
• Although recurring multiyear contracts mean that over 90% of projected next 12 month revenue is contracted, the heavy reliance on government budgets and public procurements ties Via’s future revenue and cash flow visibility to political and regulatory processes. These can change timing or priorities without reflecting on the quality of the platform.
• While the company has invested over US$500m in R&D and is now using AI, including an LLM for cities and agent tools, to improve planning and automation, there is a risk that government customers adopt these new capabilities more slowly than expected. This would delay any uplift in net margins or earnings from higher margin software features.
• Although partnerships like the Waymo agreement and the broader move toward autonomous and microtransit services can lower operating costs for agencies and support higher margin software revenue, the pace of AV rollout and differing adoption patterns between the US and Europe can create uneven revenue and margin trends across regions.

Assumptions

This narrative explores a more pessimistic perspective on Via Transportation compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts. How have these above catalysts been quantified?

• The bearish analysts are assuming Via Transportation's revenue will grow by 23.7% annually over the next 3 years.
• The bearish analysts are not forecasting that Via Transportation will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Via Transportation's profit margin will increase from -22.9% to the average US Software industry of 12.7% in 3 years.
• If Via Transportation's profit margin were to converge on the industry average, you could expect earnings to reach $98.2 million (and earnings per share of $0.99) by about January 2029, up from $-93.2 million today.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 51.6x on those 2029 earnings, up from -22.8x today. This future PE is greater than the current PE for the US Software industry at 30.9x.
• The bearish analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.48%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Government transit budgets are influenced by political decisions at federal, state and local levels, and while recent ballot measures and budgets have supported transit, any prolonged shift in priorities or pressure to cut spending could slow new contracts or renewals, which would weigh on revenue and earnings.
• Many of Via Transportation's potential customers are risk averse and slow to change, and converting a small fraction of the 63,000 identified prospects has already required long procurement cycles. If this conservative behavior persists, customer additions and upsell into new modules could fall short of expectations, affecting revenue growth.
• The company is investing heavily in AI tools, an LLM for cities and new software modules. If public agencies adopt these capabilities more gradually than management expects or face internal resistance and skills gaps, the mix could remain more service heavy, which would limit progress toward higher gross margins and improved net margins.
• Autonomous vehicles are a key part of Via Transportation's long term vision, including the Waymo partnership. Differences in AV adoption between the U.S. and Europe, regulatory delays or safety concerns could slow rollouts, leaving expected cost savings and high margin software usage unrealized, which would pressure earnings.
• The schools transportation vertical is still early and grew quickly in customer count from a low revenue base. If these contracts scale more slowly, prove more seasonal than expected or carry structurally lower pricing, average revenue per customer and overall gross margin could come under pressure, which would impact earnings and cash generation.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bearish price target for Via Transportation is $40.0, which represents up to two standard deviations below the consensus price target of $48.9. This valuation is based on what can be assumed as the expectations of Via Transportation's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $59.0, and the most bearish reporting a price target of just $40.0.
  
• In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2029, revenues will be $770.1 million, earnings will come to $98.2 million, and it would be trading on a PE ratio of 51.6x, assuming you use a discount rate of 8.5%.
  
• Given the current share price of $26.23, the analyst price target of $40.0 is 34.4% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.