It’s been a week since Virgin Galactic (NYSE:SPCE) appointed Michael Colglazier as its new chief executive officer. SPCE stock is up 35% since.
The former head of Disney’s (NYSE:DIS) international parks and resorts operations replaces George Whitesides, who moves into the newly created position of chief space officer. Some people are puzzled by the hiring.
Here’s why I believe it makes total sense.
Whitesides Can Focus on Getting the Product Right
The former CEO has a deep background in the space program, including as chief of staff at NASA. Also, as a pilot, Whitesides understands the risks of sending customers into space.
Virgin Galactic is far enough along in its development process that it was time to let Whitesides be day-to-day on the technical aspects of space flight. At the same time, Colglazier can take care of the sales and marketing of its business while also keeping investors informed about its progress toward commercial space flight.
Some might question the hiring, arguing that it’s too early to hire a “corporate” person to take the business mainstream. Others might feel that Colglazier’s background is poorly suited to a business grounded in science and technology.
“While we think the timing of the transition is sensible, what’s unclear to us at this point is Mr. Colglazier’s fit for the role,” Vertical Research Partners analyst Darryl Genovesi wrote in a note to clients. “We are inclined to give him the benefit of the doubt, particularly given Mr. Whitesides’ continued involvement.”
That’s a lukewarm endorsement at best. And Genovesi has a buy rating on SPCE stock and a $29 target.
I would argue that now is the perfect time to hire Colglazier. Further, I think he’s an excellent choice to lead the company.
NASA’s Seal of Approval
On the timing front, I wrote in early July that the company’s agreement with NASA’s Johnson Space Center to create a readiness program for private astronauts was another boost to its credibility.
“While there’s a long way to go before Virgin Galactic is running routine flights into space, it’s clear the company is building the infrastructure necessary to be a big part of the commercial space industry. Sure, Jeff Bezos and Blue Origin will also be a big part of this industry, as will Elon Musk and SpaceX. Still, I don’t think there’s any question Virgin Galactic has caught the interest of both retail and institutional investors. Now it’s just a matter of what happens next.”
With Whitesides able to focus more closely on the technical side of its business, Colglazier can be more confident in its sale of future space flights. If NASA doesn’t have a problem with Virgin Galactic’s training program or its space travel infrastructure, I don’t think investors should either.
As for Colglazier’s specific skill set, I don’t think you get into Disney’s upper management without having a lot of strengths. In his case, he’s spent more than 30 years at Disney in roles that focused on product innovation and customer growth.
In many ways, it reminds me of Best Buy (NYSE:BBY) hiring Hubert Joly to turn around the electronics retailer in August 2012. Although critics believed Joly lacked the experience to turn around Best Buy, Joly delivered significant returns for shareholders until he stepped down as CEO in April 2019.
My feelings at the time of Joly’s hiring was that he understood the service business and would be willing to seek out the talent necessary to reignite growth at Best Buy.
I get the same sense about Colglazier. You don’t spend 30+ years at Disney and not understand how important it is to provide customers with an excellent experience. Ultimately, Virgin Galactic’s business is all about the customer experience.
The Bottom Line on SPCE Stock
Richard Branson appears to have found a rescue package for Virgin Atlantic, which means he’ll likely be able to stay in control of Virgin Galactic. And that’s excellent news for shareholders.
As for the hiring of Colglazier as CEO, I think it’s a winner, which will pay dividends for shareholders for years to come.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.