It’s been about a year since Virgin Galactic Holdings (NYSE:SPCE) became public. The transaction was facilitated though the merger with the Social Capital Hedosophia SPAC (Special Purpose Acquisition Company), which was controlled by Silicon Valley investor and former Facebook (NASDAQ:FB) executive Chamath Palihapitiya.
Since the offering, the shares have gone from $13 to $21, bringing the market capitalization to $5 billon. Yet there has been considerable volatility along the way. The stock price has been as low as $6.90 and as high as $42.
The co-founder of Virgin Galactic is the legendary entrepreneur, Sir Richard Branson. He has launched ventures across a variety of categories like entertainment, financial services, technology, travel and health/wellness. But Virgin Galactic is perhaps his most ambitious.
Branson started it in 2004 to pioneer the business of space exploration. And as of now, he is very close to realizing his vision. For up to $250,000, a person can take a trip on a space craft that involves several minutes of weightlessness and amazing views of Earth from space.
Let’s get some of the latest developments and get a sense of the investment opportunity here.
The Business and SPCE Stock
On Nov. 5, Virgin Galactic reported its third quarter results. The loss came to 34 cents a share, which was better than the Street’s consensus of a loss of 26 cents.
Despite all this, the company is still quite liquid. Consider that there is about $742 million in the bank. During the quarter, the company raised $440 million in a secondary offering at $19.50 per share. For the most part, Virgin Galactic should have enough financial resources for a while.
Yet the financials were not what investors wanted to know about. Instead, the interest was more about the timelines for the launch of the service. The company disclosed that the VSS Unity rocket would be launched in the New Mexico facility between Nov. 19 to 23. This would also include payloads from NASA, which will generate some revenues.
Unfortunately, the company has already backed off on this — primarily because of the new Covid-19 restrictions in New Mexico. As a result, the company will have to reschedule the flight.
In the meantime, Virgin Galactic has continued to make progress in the development of its second SpaceShipTwo. This should be completed in the first quarter of 2021.
The Market
The opportunity for Virgin Galactic does look massive. There is definitely a large number of wealthy people who could easily afford the company’s service. Based on 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.
On the latest earnings call, Virgin Galactic CEO Michael Colglazier provided some interesting details on how the company could generate billions in revenues: “The next chapter of Virgin Galactic is to use this system to bring thousands and thousands of people to space and deliver our purpose of opening space to change the world for good. At a recent objective, we are embarking on a multi-year effort that will lead to flying not once a month or even once a week, the targets flying 400 flights per year per Spaceport.”
But pulling this off will be an enormous logistical challenge. Let’s face it, space flight is inherently dangerous. And as for Virgin Galactic, it has suffered from several tragic accidents.
True, the company has learned from these and has built better systems. But still there will need to be even more advanced technologies and processes to scale space flight.
Bottom Line on Virgin Galactic
Colglazier’s goal does look like a stretch. But even if he can get half this level within the next decade, this would be a major achievement. It would mainstream space flight and Virgin Galactic would be one of a few companies that could provide such a service.
Again, there are considerable risks. But for the most part, for those investors who want to participate in an emerging industry – the so-called “final frontier” – Virgin Galactic is a good choice.
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 the author of various books on investing and technology, including Artificial Intelligence Basics, High-Profit IPO Strategies and All About Short Selling. He is also the founder of WebIPO, which was one of the first platforms for public offerings during the 1990s.
