Earlier in the year, Virgin Galactic (NYSE:SPCE) was, well, a rocket ship, going from $11 to $37. But since then, as the markets have cratered, the shares have been mostly in freefall. Note that SPCE stock is now at about $15.41, putting the market capitalization at around $3 billion.
Virgin Galactic, which is a pioneering company that plans to provide spaceflights for daring and wealthy tourists, came public back on Oct. 28. Although, it did this in a way that is not common — that is, by merging with a “blank check” entity called Social Capital Hedosophia. It had been trading since 2017 and was backed by the high-profile venture capitalist and former Facebook (NASDAQ:FB) executive, Chamath Palihapitiya.
He even personally invested $100 million in SPCE stock. Yes, that’s big-time skin in the game.
Virgin Galactic is the mastermind of British serial entrepreneur and billionaire Sir Richard Branson. He started the company back in 2004.
Yet it was not until late 2018 that the company launched the first commercial vehicle to put humans into space. It was was also the first U.S. space flight since 2011, when the NASA Space Shuttle program was shutdown.
As for this year, the main goal of Virgin Galactic is to fly Branson into space. Then for the following year, the focus will be more on the commercialization of the service.
The Business Model
Virgin Galactic plans to charge customers anywhere from $200,000 to $250,000 each for a 90-minute flight that will reach 50 miles into space, allowing for five minutes of weightlessness. There will also be spectacular views of the earth.
According to the company: “We believe that one of the most exciting and significant opportunities of our time lies in the commercial exploration of space and the development of technology that will change the way we travel across the globe in the future. Together we are opening access to space to change the world for good.”
Yes, it’s an ambitious vision. But then again, how big is this market opportunity, really? As with anything that is in the early stages, predictions should be taken with a grain of salt.
But during the latest earnings call, Virgin Galactic CEO George Whitesides did point out that — in an article from the U.S. Chamber of Commerce — that the market is forecasted to grow 6% a year to at least $1.5 trillion by 2040.
In fact, Virgin Galactic has already signed up about 600 customers for $80 million in deposits. There have also been roughly 8,000 registrations of interest.
Bottom Line SPCE Stock
There remains considerable risks for SPCE stock. Keep in mind that the company still only has one spaceflight system. Next, there are the inherent dangers of accidents, engineering flaws and malfunctions.
Consider that a few years ago a Virgin Galactic spacecraft crashed, killing one pilot. The reasons included human error and inadequate safety procedures.
The company has since made major strides in improving its systems. For example, there have been clearances of 20 out of 29 verification and validation elements for its space craft from the FAA. Although, given the agency’s mishaps with Boeing’s (NASDAQ:BA) 737MAX, there will likely be much more scrutiny.
So all in all, expect lots of volatility with SPCE. Its inevitable with any pioneering company. So for those considering an investment, there should definitely be lots of caution.
Tom Taulli (@ttaulli) is the author of various books on investing and technology, including Artificial Intelligence Basics, High-Profit IPO Strategies and All About Short Selling. He is also the founder of WebIPO, which was one of the first platforms for public offerings during the 1990s. As of this writing, he did not hold a position in any of the aforementioned securities.