3 Things You Need to Know From Virgin Galactic's Earnings Call
Space tourism company Virgin Galactic (NYSE: SPCE) reported full-year 2023 earnings at the end of February. This closed out a "record" year for spaceflight, in which the company flew its VSS Unity spaceplane seven times, and tripled its annual revenue. And what did this mean for the company's multi-year history of losing money and burning cash?
Losses increased by $2 million, and cash burn grew by 24%, to $492.5 million. That's according to S&P Global Market Intelligence, a provider of financial data on U.S. companies.
But beyond the headlines, S&P Global also provided audio from the post-earnings conference call that Virgin Galactic held with Wall Street analysts. It was there that investors learned three more things about Virgin Galactic, its plans, and its future prospects.
1. Virgin Galactic is planning a big price hike
In 2021, Virgin Galactic famously offered to fly tourists to the edge of space for as little as $200,000 a ticket. According to the company, 600 would-be astronauts took Virgin Galactic up on its offer, encouraging the company to raise prices for its next batch of tickets to $450,000 apiece in 2022.
This new offer wasn't as popular. So far, only about 125 customers have signed up to buy Virgin's pricier tickets. But with Virgin still losing money (and indeed, losing money a bit faster than it used to), the company has decided to raise prices again -- this time, to $600,000 a ticket.
Virgin still thinks this price offers "outstanding value for the product and lifetime experience." Citing media reports, CEO Michael Colglazier says archrival Blue Origin is probably selling tickets on its own New Shepard space tourism rocket for more than $1 million each. Virgin itself has successfully sold Unity tickets for $800,000 and up to various scientific researchers. Now, Colglazier confides that in rare instances when existing reservation holders give up their place in line, Virgin might sell new tickets for those placeholders at the new and improved $600,000 price.
This could potentially produce positive revenue surprises in future quarters.
2. Virgin Galactic is building new spaceplanes
Virgin Galactic's longer-range plans continue to hinge on the Delta spaceplane. Resembling Unity in most respects, Delta will differ from Unity (which was supposed to carry six passengers, but actually carries only four) in that Delta will strip out excess weight to enable a full complement of six paying passengers per flight.
Combined with $600,000 ticket prices, this could generate $3.6 million in revenue per flight. Multiply that by an anticipated eight flights per month, and that would mean $28.8 million in revenue per month, $86.4 million per quarter, and $345.6 million per year, per spaceplane.
Virgin says Delta will begin flight tests in 2025, and enter service in 2026, flying out of Spaceport America in New Mexico. The company says it will need four or five spaceplanes and two motherships to support this pace of operations. Management did not say how much it expects to spend on the motherships, but each Delta will cost $50 million to $60 million. Thus, the total cost of outfitting just one Spaceport will exceed $300 million -- perhaps by a factor of two or three times.
How many flights will it take to recoup that capital investment? Without more data, it's impossible to be certain, but with five spaceplanes flying fully loaded flights, and 400 or more total flights per year, it seems likely the company could make back its capital investment within one year of completing its fleet.
That's assuming, of course, that Virgin can find 2,400 customers willing to pay $600,000 a pop.
3. Virgin Galactic thinks its passenger market exceeds 300,000
Is this a realistic assumption? Virgin Galactic thinks so.
CFO Douglas Ahrens estimates there's a total of about 300,000 people potentially willing and able to ante up that kind of cash worldwide, and the market is growing 8% annually. If he's right, then 2,400 customers a year is only 1% of a growing market -- and if the market grows 8% per year, Virgin could literally never run out of customers.
For this reason, Colglazier believes now is the time for Virgin Galactic to shift into "Phase 2" of its plans. Having proven its concept by flying 32 humans to space and back, Virgin Galactic will now move past its "R&D and prototype roots" and begin to scale up operations.
First, the company will build out Spaceport America and the fleet based there. Operations will accelerate with the arrival of Delta in 2026. As the tempo increases, and annual revenue passes $1 billion at Spaceport, the company will build a second spaceport in 2029 -- aiming to create a whole chain of spaceports, each contributing annual revenue in the $1.1 billion to $1.4 billion range.
Admittedly, for a company that's losing money, burning cash, and counting its revenue in just the single-digit millions today, the plan sounds a little farfetched -- but at least Virgin Galactic has a plan.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends S&P Global. The Motley Fool has a disclosure policy.
3 Things You Need to Know From Virgin Galactic's Earnings Call was originally published by The Motley Fool
