Healthy skepticism is finally arising around Virgin Galactic (NYSE:SPCE), the space plane operator that went public a year ago. SPCE stock IPO’d through merging with special purpose acquisition company (SPAC) Social Capital Hedosophia, run by CEO Chamath Palihapitiya. The stock had a brief vogue in February, rising to nearly $40 per share, but it has since bounced around.
Virgin Galactic opened for trade Oct. 28 at about $18, still well above the $12 where it started the year. We can’t talk revenue or earnings because there aren’t any. But long-term sustainability seems a long way off.
Space Ain’t Easy, and Neither Is SPCE Stock
Despite what some science fiction says, getting people into space and getting them back down alive isn’t very easy. The design Virgin Galactic is flying — a motorized glider launched from a commercial jet — is a descendant of SpaceShipOne, which flew back in the early 2000s. Virgin Group originally thought tourist flights to space would start in 2008, but the first SpaceShipTwo wasn’t rolled out until 2009. So far the company has only made test flights.
Two more test flights are planned, but the lack of specific dates at SPCE’s October announcement sent shares skidding. Again.
For a stock with a market capitalization under $4 billion, SPCE stock has proven subject to wild swings. This may be why speculators like to play it. For instance, it jumped 25% on Sept. 25 after Wall Street firms endorsed its plans. Since then, it has fallen 15% in a matter of days.
Even brokers who call it a buy are still urging the public to proceed with caution. The potential of 200,000 passengers at $250,000 per ticket seems real, but the market is untested.
While waiting for the current plane to make back some of its investment, meanwhile, founder Richard Branson is also pursuing other shiny objects.
One is the Mach 3, a space plane that could cross the Atlantic ocean with 19 passengers in 90 minutes. Then there’s the small satellite launch vehicle Branson is selling as Virgin Orbit. That failed its initial trial, but Branson is seeking more capital to get it flying. Like Virgin Galactic, Virgin Orbit depends on commercial jets to get partly out of the Earth’s gravity.
Branson keeps getting capital for these kinds of ventures, thanks to the halo effect of Elon Musk’s SpaceX — a proven commercial rocket company — and Amazon (NASDAQ:AMZN) CEO Jeff Bezos’ Blue Origin. These companies are built on the fact that computers can adjust flight paths faster than humans can.
But even with computers — and new, shiny spacecrafts — near-Earth space remains dangerous. It’s expensive to reach space, and even more expensive to stay there. Branson and Virgin have been big on promises, yes. But so far, they’re also short on results.
The window for success is closing fast. If one of the next two test flights fails, it could be game over for SPCE stock. The whole thing is playing out like a science fiction novel — maybe that’s why it appeals to Branson and investors so much.
Virgin Galactic is, and always has been, a pure speculation.
Press announcements and short squeezes are keeping this stock in the air. And the excitement Wall Street gives can easily be taken away.
Personally, I want Virgin Galactic to succeed. I think most people do — it’s an incredible prospect. And if I had some mad money to throw around, I might throw some there just for the entertainment value. But I’m an investor. My money is on my retirement. I can’t afford to mess around.
For now, I’ll continue to pass on Virgin Galactic. That is, until there’s extraordinary evidence for its extraordinary claims.
On the date of publication, Dana Blankenhorn held a long position in AMZN.
Dana Blankenhorn has been a financial journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn.