On Aug. 10, Virgin Galactic (NYSE:SPCE) sold 23.6 million shares of SPCE stock to investors at $19.50 a share. The public offering raised gross proceeds of $460.2 million.
If you believe in the commercialization of space as I do, this is one more step in the time-consuming and costly process and is to be applauded. It should not be viewed as a move necessitated by a shortage of cash. If biotechs with zero revenue can appear hat-in-hand before investors time and again, I see no reason why Virgin Galactic is any different.
Virgin Galactic’s Big Vision
The goals that the company has set for itself include a commercial program for human spaceflight, the expansion of its fleet, the reduction of its operating costs, and the expansion of its products and services beyond the U.S. are lofty but obtainable.
The $460 million raised from public investors is a reaffirmation that Richard Branson, George Whitesides, Michael Colglazier, and the rest of the Virgin Galactic team are on the right track. By continuing the test flights required by the Federal Aviation Administration — it’s completed 27 out of 29 needed for the federal government agency to begin commercial flights — it has gotten one step closer to achieving the first of its four primary strategic goals.
Branson, the visionary behind Virgin Galactic, is expected to be on its first commercial flight into space in the first quarter of 2021. Just as I was excited for Elon Musk and SpaceX’s Crew Dragon spaceship’s test launch in May and subsequent return to earth in early August, I’ll be very excited for Virgin Galactic’s first flight.
To value SPCE stock like some industrial firm that builds tractors or backhoes is merely ridiculous. The kind of innovation it’s commercializing is beneficial to all, not just the wealthy 1%, who will likely be the only paying customers for the foreseeable future.
If you can see the forest and not the trees, you’re likely to be bullish about Virgin Galactic’s future. If, on the other hand, you see this as some billionaire’s crazy waste of money, than SPCE is most certainly not your cup of tea.
I choose to see the big picture, which will ultimately lead to Virgin Galactic making money. In the meantime, the hiring of Colglazier, a former Disney (NYSE:DIS) senior executive, tells me that everyone at Virgin is serious about making commercialization work.
Like Tesla (NASDAQ:TSLA) many years ago, the valuation wonks are going to continue to argue their case, but they will be wrong.
Forget the Valuation of SPCE Stock
My InvestorPlace colleague, Patrick Sanders, recently argued that there is no logic in buying Virgin Galactic stock. While he is willing to admit that space is an intriguing canvas for business, investors ought not to be so idealistic with their money. Valuation, here on earth, Saunders argues, still means something.
He’s not wrong.
This is one of the reasons Disney hired Colglazier. It’s one thing for Richard Branson (billionaire) and George Whitesides (a veteran of the aerospace industry) to argue the benefits of space travel; it’s another for someone who’s spent his entire business career making people happy through entertainment, make the same argument.
In the future, when Virgin Galactic’s CEO says he can envision space hotels that receive daily flights from New Mexico and elsewhere, you will believe in the idea because he’s helped create meaningful customer experiences on behalf of Disney.
No, Virgin Galactic doesn’t currently have revenue. Yes, it’s losing upwards of $50 million a quarter on an adjusted EBITDA basis. Yes, it’s diluting shareholders with every $460 million share offering. It truly defies logic as my colleague so eloquently argues.
And that’s the beauty of it.
Is a $50 million quarterly loss too much for a company that’s going to generate revenue as soon as the first quarter of 2021? During the novel coronavirus, we’ve seen many biotechs burn through far more capital in search of a vaccine that might work on a significant portion of the population, even though we know most will fail in their endeavors.
Now, I’m not saying that we shouldn’t support the scientific work of these companies, because we should. But to argue that it’s illogical to invest in a company that’s got tangible evidence that commercial space flights will work, is very shortsighted in my opinion.
For me, the $460 million raise is a stamp of approval by investors. It also says SPCE stock is a long-term buy.
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.
