With No Real Plan for Generating Revenue, Virgin Galactic Stock Still Is a Gamble

Virgin Galactic (NYSE:SPCE) opened for trade Sept. 9 with a market cap of $3.6 billion, this for a company with negligible revenue, but SPCE stock has been choppy for awhile to say the least.

Virgin Galactic (SPCE) billboard on the New York Stock Exchange, across from the Fearless Girl statue.

Source: Tun Pichitanon / Shutterstock.com

Richard Branson’s life has always been a roller coaster ride. He’s up, then down, then he’s up again.Right now, he’s down. His travel empire is in tatters.  But one thing may save him, the space tourism company. It’s his final frontier.

Our David Moadel says SPCE stock is a better space play than Elon Musk’s SpaceX. I agree, in the sense that SpaceX is still private. Virgin Galactic is, in fact, like the rest of Branson’s life, a high-risk gamble with a potential reward, a swashbuckling advertisement for the capitalistic lifestyle.

A Closer Look at SPCE Stock

Thanks to regular infusions of new capital (the most recent tranche of $450 million was sold just last month) the company is well-funded. It had $373 million in cash at the end of June.

But like a rocket engine, or today’s airlines, Virgin Galactic continues to burn cash, which contributes to instability in SPCE stock. Through the first half of the year it reported losses of $120 million. Operating cash flow losses for the first half came to about $107 million. 

The latest cash infusion should get it past its last major test. That’s a flight with two test pilots scheduled for Oct. 22. Assuming all goes well, the flight with Branson himself aboard happens in the first quarter of 2021. Then they’ll seek authorization for paying passengers.

SPCE Stock Is Not a Rocket Play

This is not a rocket. It’s a light plane with a rocket engine carried to a cruising altitude by a regular plane. It then fires itself into the upper atmosphere before gliding to a landing.

It’s a sub-orbital flight. It reaches about 65 miles above the Earth, briefly. Six passengers and two crew on each flight experience a brief period of weightlessness. Then there’s six times the weight of gravity as the ship falls.

The original idea was that this was something for tourists, who would pay $250,000 each to sit in one of those seats and experience weightlessness. The idea now is business travel since the planes go halfway around the Earth in about two hours. A recent survey from Cowen showed big demand. There’s also talk about using the flights for experiments

Branson has talked a lot of money into the venture. Abu Dhabi put in $280 million for launch rights and a 32% stake. It put in another $100 million to launch satellites from the platform.

New Mexico put $200 million to create Spaceport America, the company’s launch facility, as the first step toward building a space industry there. It came public through a special purpose acquisition company, Chamath Palihapitiya’s Social Capital Hedosophia. Palihapitiya, an outspoken Facebook (NASDAQ:FB) co-founder, is now chairman, but Branson remains the front man.

Mr. Branson is a good salesman. No, he’s a great salesman. Virgin Galactic went public late last year because it needed the cash.  Branson may sell this as “to infinity, and beyond,” but it’s really to the thermosphere, and no farther. UBS (OTCMKTS:OUBSF) has a buy rating on it.

The Bottom Line

Please don’t let my tone offend you. I’m a big fan of Richard Branson. He has been making good copy for journalists for nearly 50 years. It was 1973 when he backed a musician named Mike Oldfield’s project, Tubular Bells, which helped launch Virgin Records. (What are records? Ask your dad.)

If the October flight goes off without a hitch, this might work. If Branson himself gets off the ground without a problem, this might work. Like I said, it’s high-risk, high-reward, the kind of adventure Allen Steele could have written in his salad days.

Play it with mad money if you’re not afraid of losing it.

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. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.

Article printed from InvestorPlace Media, https://investorplace.com/2020/09/no-plan-generating-revenue-spce-stock-gamble/.

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