Nearly everyone loves the idea of space travel. But that doesn’t mean that you should be investing in Virgin Galactic (NYSE:SPCE) stock.
That is, unless you really want to throw your money away. Or if you get some sort of pleasure in funding one of Sir Richard Branson’s schemes to let the ultra-rich have a few moments to float around in space.
All in all, I don’t see the appeal in a product like Virgin Galactic. And I sure don’t see any compelling argument as to why investors should sink their money into SPCE stock.
Investing in Space Travel
On the surface, it’s an appealing notion and there’s no surprise why SPCE stock and Virgin Galactic attracted a lot of attention.
First, take Branson himself. The founder of the Virgin Group that included Virgin Records and Virgin Atlantic airlines, among others, Branson is a charismatic, brilliant entrepreneur who has accomplished more in a decade than most people will in their entire lives.
Now 70, Branson has been knighted by the Queen of England and has appeared on television shows ranging from Shark Tank to The Simpsons.
No doubt, he’s a compelling, interesting guy. He’s Elon Musk before Twitter (NYSE:TWTR).
Next, consider the very appeal of space travel. It’s the idea that sparked the space race of the 1960s and President John F. Kennedy’s commitment to put a man on the moon. It’s been romanticized in science fiction in shows like Star Trek that continue to draw a passionate audience more than 50 years after they debuted.
Put the two together and call it Virgin Galactic, and it’s an interesting idea. But that’s where it ends, at least for me.
There’s No Revenue Here
Any startup is going to be slow to bring in revenue, and that certainly goes for a space tourism company like Virgin Galactic, whose biggest appeal is selling tickets on spacecraft that don’t exist yet.
The company reported second-quarter earnings in August that included zero revenue and a quarterly loss of $54 million, with an adjusted loss per share of 30 cents. That was 4 cents per share worse than analysts expected.
Not surprisingly, the company announced it would fail to meet Branson’s stated objective of having commercial flights this year and pushed that goal back to 2021.
“During the period, our operations were impacted by the COVID-19 pandemic, despite our efforts to minimize disruption,” Chief Space Officer George Whitesides told analysts.
Customers would pay $250,000 each – chump change, really, right? – to fly on SpaceShipTwo Unity and have a few moments in space.
But that didn’t stop the company for offering a proposed 20.5 million new shares of stock in an attempt to raise another $460 million in revenue.
Mach 3 Travel
The only interesting thing about Virgin Galactic’s earnings call was an announcement that it’s Mach 3 aircraft finished its mission concept review program milestones and received approval from the FAA for certification framework.
The Mach 3 aircraft could conceivably carry as many as 19 people at an altitude of 60,000 feet. Twelve-hour flights from Los Angeles to Tokyo could be accomplished in three or four hours.
That’s very cool – but the price tag for each passenger is still expected to be more than $100,000, which makes this a luxury item rather than something for the masses.
The Bottom Line on SPCE Stock
My biggest problem with SPCE stock is that it’s a toy for the rich and famous. It’s not for everyone, at least for now. And the research can lead to some interesting innovations, such as the Mach 3 aircraft, that won’t have any practical applications for the business community either as long as tickets remain in the six-figure range.
Branson’s company already diluted shareholder earnings by 10% by announcing the 20.5 million new stock shares. You can probably expect more share dilution moving forward.
The company’s very small potential market makes it a no-go in my book. I would rather put my money into a company that has a product or service that can be bought by millions and potentially scales around the world.
All in all, SPCE stock is a bad investment. As Star Trek’s Mr. Spock would say, it’s just not logical.
Patrick Sanders is a freelance writer and editor in Maryland, and from 2015 to 2019 was head of the investment advice section at U.S. News & World Report. Follow him on Twitter at @1patricksanders. As of this writing, he did not have a position in any of the aforementioned securities.