Virgin Galactic (NYSE:SPCE) is built on the premise that there’s a lot of excess cash to be burned on brief glimpses of space and supersonic flights. Unfortunately, SPCE stock is doomed to fail.
Why? That’s a 2019 premise. The 2020 reality is that everyone is hunkered down and hoarding cash. There just isn’t enough financial fuel to make this work.
Virgin Galactic reports earnings May 5 for the March quarter. During the December quarter it burned through about $215 million of cash. It’s still not taking paying passengers. It will likely burn through a similar amount this time. Cash available at the end of December was $480 million.
Knowing he’s short of cash, founder Richard Branson has cut staff and is seeking to sell both loans and stock. It’s a perilous time.
Virgin Galactic and SPCE stock are now long-shot bets.
Things Change
Promoter Branson’s own financial situation illustrates the problem.
Branson has spent most of the last half-century moving from business to business with his Virgin brand. It was first used to produce records like Mike Oldfield’s Tubular Bells. He now lives on a private island in the Caribbean. His fortune is down by one-third since 2018, to $3.4 billion.
Branson’s genius is for publicity. His personal brand is based on a vision of an open world living fabulous lifestyles.
In 2019 this was a beautiful dream. In 2020 this is a financial nightmare.
Most of Branson’s businesses have been left high and dry by the pandemic. Virgin Hotels is now operating in four cities, out of 10 planned. His airline, Virgin Atlantic, is now seeking a British government bailout. Virgin Voyages is a cruise line that launched as the virus was hitting. There’s also a fintech called Virgin Money (OTCMKTS:CYBBF), an online bank in the United Kingdom. Together Branson businesses employ 70,000 people.
The Virgin Galactic Situation
Virgin Galactic went public in October.
At first it was champagne wishes and caviar dreams. In February, the stock nearly touched $40 per share. By mid-March it was near $10 and opened for trade May 4 just below $17. That’s a market capitalization of $3.8 billion for a company with no revenue.
The original idea of Virgin Galactic was space tourism. Now it’s about quick flights halfway around the world. The “plane” is towed to 40,000 feet under a larger plane. It then fires its engines to reach sub-orbit at three times the speed of sound, before gliding to touchdown.
The first glide flight, from a base in New Mexico, was made May 3. Tickets cost $250,000.
The public offering was done through a reverse merger engineered by Chamath Palihapitiya of Social Capital Hedosophia. The valuation at the time was $1.5 billion. Last year Palihapitiya said he had a backlog of over 600 people, with $80 million in deposits collected.
Back then, it looked glorious and practical. Now it doesn’t.
The Bottom Line on SPCE Stock
InvestorPlace’s Nicolas Chahine still believes in Virgin Galactic. He admits it’s a “calculated risk on the space flight market given what we know today.” Chris Tyler also thinks it’s a speculation, but a valid one. Analyst Louis Navellier considers the current price reasonable for speculators.
I am not a speculator. I am an investor. I’m investing for retirement — this means I want to see revenues, growth, profits and ultimately, dividends.
That’s why I agree with more bearish writers here like Josh Enomoto and Mark Hake, both of whom suggest you avoid SPCE stock.
Even in the best of times Virgin Galactic was a speculative long shot. We are about to go into the worst of times. It’s not the time to be speculating on anything.
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.
