Serial entrepreneur Richard Branson has a long history of reimagining different industries – and making lots of money in the process. But perhaps Virgin Galactic (NYSE:SPCE) is the most imaginative effort. Of course, the company is pioneering the emerging space tourism industry. And yes, investors can take a ride by buying SPCE stock.
Yet the journey for Virgin Galactic has been challenging. Branson leveraged his Virgin Group empire to found the company back in 2004. At the time, he joined forces with Burt Rutan, who owned Scaled Composites. Unfortunately, Virgin Galactic would suffer from several major setbacks along the way. In 2007, three employees died while testing components in a rocket motor while in the Mojave desert. Then in 2014, a test flight of a rocket broke apart in midair, as one person died and another person was severely injured.
But despite all this, Branson has been able to fix the problems. In fact, things have gone quite smoothly over the past few years.
Branson was also smart to pull off a merger into a special purpose acquisition company. This strategy not only accelerated the process of coming public but provided the company with about $800 million in much-needed cash.
Virgin Galactic has two rockets, which use reusable systems and can carry six passengers. Each one can make a trip every two months or so. As for the space flight, it involves several minutes of weightlessness and majestic views of Earth from space. For this, customers will need to shell out a hefty $250,000.
So then, how big is this potential market? How many people will really do this? Well, it could be a lot.
According to research from Credit Suisse (NYSE:CS), there are 41.1 million people in the world that have a net worth of $1 million to $5 million. There are also 3.6 million people who have a net worth of $5 million to $10 million. In other words, there should be enough wealthy people to turn space tourism into a billion-dollar industry.
Something else that is encouraging for SPCE stock: the company has been getting traction with reservations. So far, there have been about 600 that include deposits of more than $80 million. It certainly helps that the Virgin brand is quite powerful.
No doubt, one of the notable risks with SPCE stock is the novel coronavirus pandemic. It has interrupted the company’s schedules and made it more difficult for development. But then again, the pandemic still hasn’t had much impact on interest from potential customers.
Interestingly, space tourism may not be the only revenue source for the company. Keep in mind that Virgin Galactic has developed a next-generation propulsion system – and it might have applications for jet planes or other space applications. This could mean that the company could tap into another multi-billion dollar opportunity. Who knows, it may even be bigger than space tourism.
Bottom Line on SPCE Stock
As should be no surprise, SPCE stock has been volatile since the company has hit the public markets. Back in February, the shares fetched more than $40. But they would then plunge to below $10. As for now, SPCE stock is trading at $21 and the valuation is at $4.5 billion.
These swings will likely to continue. After all, we’ve seen this with other pioneering companies, such as Tesla (NASDAQ:TSLA).
Although, for SPCE stock, there is a near-term catalyst. Next quarter, Virgin Galactic will start flights, which will certainly gin up excitement. This will probably also lead to a boost in reservations.
Another advantage is that there is little competition. As a result, Virgin Galactic has the opportunity to generate substantial revenue in the next few years, which could be boosted by jet propulsion sales. So all in all, SPCE stock could be a long-term winner.
On the date of publication, Tom Taulli did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Tom Taulli (@ttaulli) is an advisor/board member for startups and author of various books and online courses about technology, including Artificial Intelligence Basics, The Robotic Process Automation Handbook and Learn Python Super Fast. He is also the founder of WebIPO, which was one of the first platforms for public offerings during the 1990s.