AI Transit Automation And Public Funding Trends Will Drive Long-Term Opportunity

Catalysts

About Via Transportation

Via Transportation provides an end to end software and services platform that digitizes and optimizes public transit networks for governments and cities globally.

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

• Structural underinvestment in transit technology is now reversing as agencies digitize legacy, pen and paper systems. This positions Via as the scaled category leader to capture a small current share of an $82 billion addressable market and to pursue sustained double digit revenue growth.
• Growing, bipartisan public funding for transit at federal, state and local levels, reinforced by recurring ballot measures and multi year appropriations, supports long contract durations and high revenue visibility. This environment also enables upsells and price mix that can expand earnings over time.
• Rapid adoption of Via’s AI driven planning, operations and analytics tools, including its LLM for cities and agent AI suite, is increasing automation and ROI for agencies. This trend should support higher software mix, faster same customer expansion and structurally higher net margins.
• Expansion into adjacent, largely greenfield verticals such as student transportation and nonemergency medical transport, where Q3 school customers more than doubled, adds new budget owners and use cases. This creates incremental subscription layers that can accelerate total revenue and enhance gross margin as these products scale.
• Partnerships that integrate autonomous vehicles, such as Waymo in Chandler, and the shift of lower margin services to third party fleets directly lower operating costs for agencies and Via. These dynamics support premium software positioning and management’s path from a roughly 40% gross margin toward a 50% long term target and improved EBITDA.
• Demonstrated regional network effects, where reference customers in markets like Michigan, Omaha and Mobile drive inbound demand and lower sales and marketing intensity, should compound as Via adds more than the current 713 customers. This can increase revenue per head and contribute to operating leverage and margin expansion.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Via Transportation's revenue will grow by 22.9% annually over the next 3 years.
• 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 $96.3 million (and earnings per share of $0.97) by about December 2028, up from $-93.2 million today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 71.6x on those 2028 earnings, up from -28.9x today. This future PE is greater than the current PE for the US Software industry at 31.2x.
• 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?

• Via remains unprofitable with an adjusted EBITDA margin of negative 8% and only modest gross margin improvement to 39.6%, so any slowdown in growth or delay in reaching the long term 50% gross margin target could leave the business structurally loss making for longer, pressuring earnings and valuation.
• The company is heavily dependent on government and transit agency budgets, which are subject to multi year political cycles, expiring COVID era funding and changing fiscal priorities. Any tightening or deferral of appropriations or ballot measures would directly reduce new project awards and upsell potential, slowing revenue growth.
• Winning large takeovers from entrenched legacy vendors requires long, complex public procurement cycles with risk averse buyers. If adoption of new technology or AI tools by these agencies proves slower than management expects, the conversion of the 63,000 potential customer base could be much more gradual, limiting long term revenue scale and operating leverage.
• The strategy to expand margins by shifting lower margin services to third parties, layering on higher margin software and pursuing M&A assumes seamless execution and integration in a fragmented industry. Missteps with partners or acquisitions could increase costs or dilute pricing power, hurting gross margin and net margins.

Valuation

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

• The analysts have a consensus price target of $54.4 for Via Transportation based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $60.0, and the most bearish reporting a price target of just $40.0.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be $755.2 million, earnings will come to $96.3 million, and it would be trading on a PE ratio of 71.6x, assuming you use a discount rate of 8.5%.
  
• Given the current share price of $33.27, the analyst price target of $54.4 is 38.8% 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.