Virgin Galactic Is Grounded with No Profit and Little Revenue
Many investors regard Virgin Galactic (NYSE:SPCE) as the first publicly traded space tourism company. So far this year SPCE stock is up about 37%, but that number tells only half the story of the spaceflight company’s shares.
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SPCE is part of Sir Richard Branson’s Virgin Group. He had previously founded Virgin Atlantic Airways which itself is owned in part by Delta Air Lines (NYSE:DAL). Branson’s Virgin Galactic went public via a reverse merger in October 2019 at an opening price of $12.34. On Feb. 20, SPCE skyrocketed to an all-time high of $42.49.
Since then it has been volatile with a downward bias like so many other stocks. It now sits below $16, a decline of about 57% from its February peak.
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Broader indices have been buoyed in recent weeks by potential positive news regarding the gradual lifting of the novel coronavirus lockdown as well as the hopes for the development of an effective vaccine. However, as states and businesses are looking to return to some form of normality, questions are also emerging as to whether there may be a second wave of Covid-19 infections.
Therefore, there may be some short-term profit-taking in SPCE stock. Yet investors with a long-term horizon whose portfolios can also weather further volatility may consider buying into the shares of this exciting venture.
SPCE Is a Space Startup
According to recent research by of Scott Winter and Justin Trombley of Embry-Riddle Aeronautical University, “Technological advancements in space travel have brought the concept of private, commercial space transportation closer to reality. Companies such as Blue Origin and Virgin Galactic are working to offer commercial, low orbit space flights to paying customers, and SpaceX is even considering private trips to Mars.”
Virgin Galactic defines itself as “the world’s first commercial spaceline and vertically integrated aerospace company.”
On a side note, InvestorPlace readers may also be interested to know that Blue Origin is fully funded by Jeff Bezos, CEO of Amazon (NASDAQ:AMZN). Similarly SpaceX is the brainchild of Elon Musk, CEO of Tesla (NASDAQ: TSLA). Each of these three businesses have different structures and financing approaches to commercial space flight.
Going forward, SPCE management plans to run “a regular schedule of spaceflights for private individuals and researchers” from its operational hub and “spaceport” in New Mexico.
Within this new decade, space tourism could become a market of $3 billion. And by default, the prospects for SPCE stock could be risky, yet exciting and rewarding.
However, Virgin Group is about to sell 12% of its stake in Virgin Galactic. The aim is to free up capital to financially support the group’s other travel and tourism related businesses, especially Virgin Atlantic Airways, which has been adversely affected by the viral outbreak.
This sale is likely to put pressure on SPCE stock price. In the coming months, Branson may have to sell even more shares to save Virgin Atlantic Airways.
SPCE Doesn’t Turn a Profit Yet
On May 5, SPCE released its financial results for the first quarter. It was the second quarterly report as a public company.
The company reported revenues of $238,000, generated by providing engineering services, and net loss of $60 million. It reported having cash and cash equivalents of $419 million as of March 31.
In comparison, in the fourth quarter of 2019, SPCE reported revenues of $529,000 and a net loss of $73 million. So in Q1, Virgin Galactic managed to narrow the losses by $13 million.
The company’s reusable suborbital vehicles are designed to reach “space altitudes on frequent, affordable, and safe suborbital voyages.” Each ship will have two pilots. Virgin Galactic plans to carry up to six passengers in its spacecraft at a time, charging $250,000 per person. As of April 29, more than 9,100 signed up to express interest.
Before the Covid-19 pandemic, Virgin Galactic was aiming for completing the world’s first commercial spacecraft into suborbital space in 2020. Now, that timetable does not look so clear, it said.
“The full impact of the COVID-19 pandemic on the Company’s full year financial results and test flight program will depend on future developments, such as the ultimate duration and scope of the outbreak, the timing and impact of future stay-at-home orders and other government mandates, and the pace at which the Company can resume normal course operations.”
Thus, it’d be highly difficult to assume that passengers would be able to attend a pre-flight training or travel to space for fun in the coming months.
Investor Takeaway on SPCE Stock
In the past decade, space tourism became a topic of media interest, in part due to the technological developments in the aerospace sector and in part due to reduced costs of access to space. And with the 2019 IPO of Virgin Galactic, now it is part of investor interest.
However, as a result of the global pandemic, many businesses and states have had to shut down or decrease operations to a bare minimum. It will be a while before anyone is going anywhere, including space, for pleasure. Virgin Galactic’s space tourism timetable looks questionable at this point.
It’s be likely that we can expect a delay of at least several months or even a year for the first flight into space. I do not expect SPCE stock to go back to the February highs any time soon.
However, if you’re ready to buy into the “space story” and are happy to wait several years, then SPCE stock may be appropriate for your portfolio and you may consider buying the dips. I’d be consider investing as the price goes toward $12.50.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation. As of this writing, she did not hold a position in any of the aforementioned securities.
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