Since it went public in November, the stock chart of Virgin Galactic (NYSE:SPCE) has described just what it’s selling. The shares rocketed upward for a moment and have now fallen back to Earth.
Virgin Galactic was created to sell space tourism. It plans very short flights above the atmosphere starting later this year. But now the Richard Branson startup has even grander visions, of its space planes getting people from Los Angeles to Tokyo in just two hours.
It’s an attractive idea. InvestorPlace’s Will Ashworth recently compared it to Tesla (NASDAQ:TSLA). But Virgin Galactic doesn’t just have the problem of scaling to deal with. It still must get off the ground.
What’s Working for SPCE Stock?
Virgin Galactic’s fourth-quarter report has many pretty pictures. It also features a net loss of $73 million on revenue of $529,000. At the end of the year the company had $480 million in the bank, after raising $552 million in the public offering.
The company has built a good team, headed by board chair Chamath Palihapitiya, an early Facebook (NASDAQ:FB) executive who calls his venture firm Social Capital Hedosophia. I like the cut of the man’s jib, as they say, but his reputation is based largely on Virgin’s successful IPO.
Virgin Galactic has signed partnership deals with Boeing (NYSE:BA) and Under Armour (NYSE:UAA). Its product is an evolved form of Burt Rutan’s SpaceShipOne, which made a brief flight off an airplane in 2004 to become the first private space vehicle.
Virgin Galactic has recently been taking $1,000 “reservations” for future flights. This is compared with the Tesla deposits which helped fund that company. But you’re not buying today’s Tesla, you’re buying the 2010 version, which was a company that had yet to make a car.
What Virgin Galactic Lacks
All Virgin Galactic lacks is a business.
By that I mean all the company’s milestones so far are either financial or preparatory. It hasn’t achieved commercial spaceflight. It hopes to have five planes in service by 2023 but it hasn’t yet taken a single commercial passenger.
In other words, Virgin Galactic is a startup being run with public capital.
There’s nothing technically wrong with that. If you have “mad money” you can afford to lose, and many people did late last year, SPCE stock is as good a place to burn some. But how many people are willing to spend a quarter-million dollars to go into low-Earth orbit for a few minutes?
I’m old enough to have seen this movie before. It was called the Concorde, and it failed. So far, Virgin Galactic is just a smaller, faster and even more expensive version of it.
The Bottom Line on SPCE Stock
Virgin Galactic is a product of the last decade’s optimism. Its story has nothing to do with 2020’s reality.
If you have a few dollars that you can afford to lose, then by all means dream the dream.
Just remember that some dreams turn into nightmares. Richard Branson has been doing deals like this for decades, ever since music came on vinyl records. In every case, those who stayed with him too long saw their dreams crash and burn.
I can’t see this one ending differently. I would love to be wrong.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of the environmental thriller Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.