Virgin Galactic has ‘less than a year of cash runway,’ Space Capital managing partner says

Space Capital Managing Partner Chad Anderson joins Yahoo Finance Live to discuss Virgin Galactic's path to profitability, the timeline for commercial orbital flights, space tourism, and SpaceX's Starlink broadband internet satellite.

Video Transcript

- Well, shares of Virgin Galactic getting a big pop in the session. It is up more than 10% right now, after the company reported its latest results, posting a narrower than expected quarterly loss. The space tourism company reporting revenue of $141,000 with a net loss of $80 million. It also improved in its cash position, but when you look at the last two years, the company reporting a loss of $1 billion.

Let's bring in our guest, Chad Anderson. He is [? SPCE ?] Capital managing partner. Chad, always good to talk to you. We should mention you have invested in a number of these space companies, including SpaceX. Virgin Galactic not one of them. It sounds like even though we're seeing some optimism back around the stock, you're still a little [? bearish. ?]

CHAD ANDERSON: Well it's interesting to see the pop. You know, and it seems to be the major driver behind that is that they saved a few million on cash. Because there weren't really a lot of major announcements in the earnings call yesterday. They have ramped up their spending. They've been burning through $50 million a quarter. They're now up to 80. I guess that's less than what analysts were expecting.

But they have $900 million in the bank. $80 million per quarter that they're burning through. So they have less than a year of cash runway. So they really have to get their commercial service launched this year. So the fact that they're saying that they're on schedule for that is important. And I guess that's driving some optimism here.

Reading between the lines, their Delta vehicle. So their vehicle that's going to come online in 2026 is really going to be the driver of cash flow, making them cash flow positive. And it's taken them 20 years to get here, which is, is notable. But also, it's driven by the scale of manufacturing.

So it's essentially the same vehicle as going to be coming online in the version prior. But it's going to take them to a weekly launch cadence. And so, going from a single test vehicle to mass production is not trivial, and we're going to have to see how they manage through that.

BRIAN CHEUNG: Hey Chad, it's Brian Cheung here. I mean, the big story for Virgin on the cash side of things is just kind of the expectation for them to be pricing their first flights at about $450,000 a pop with about a third of that down. In terms of pricing, I mean, again it's kind of difficult in an industry that's so new, but is that high, is that low? Is that going to help them plug that cash hole once they do start launching those flights?

CHAD ANDERSON: Well, they're selling seats now, but it's not really translating to a whole lot of revenue. As we saw, there was only $100,000 in revenue in this last quarter. So I don't know that that's a major driver here, although it's interesting to see that people are willing to pay.

They priced that at $250,000 initially. Blue Origin, then, you know, is a competitor here with a different type of vehicle doing a similar type of service. And they went out, instead of putting out a price they did an auction, and they did a lot of customer discovery. You have to think that some of that has leaked out and that Virgin has gotten, you know, a sense of how that went and where they're planning on ultimately pricing their product. And that this is, is somewhere in the same ballpark.

So they've doubled their price almost to $450,000, and people are signing up and willing to pay. And now, now they need to get launched.

- Chad, let's talk about a company you are quite bullish on and that is, of course SpaceX. There's a lot of talk about a potential spin-off of their satellite service, Starlink. What is the case for an IPO on that front? And also, what do you make of-- a lot of the concerns around whether, in fact Starlink is equipped to meet the kind of demand that the market could see?

CHAD ANDERSON: Yes, I mean, there's a lot of talk about space tourism. That's really a small piece of what's going on in the overall space economy. And there's a lot of very interesting opportunities for investors. One of those is in satellite communications.

We just published our latest thesis paper called "The Satcom Playbook." And in it, we talk about how, through Starlink, SpaceX is going to bring 20 times the broadband capacity online in the next five years. And this is that latency that rivals terrestrial. So they're still in beta; they haven't rolled out their commercial product yet for, for Starlink, and already it's showing really, really impressive results from those who are using it.

So we are going from satellite communications being a really a niche [? comms ?] product, making up less than a percent of global broadband, to a significant portion of the world's global internet consumption. We think that Satcom is going to account for a third of that over the next three to five years. And so we're essentially going from satellite as a back, backhaul, to satellite as an internet backbone in space.

BRIAN CHEUNG: And that's a really interesting point that you bring up, because that's one differentiator between Virgin Galactic and then SpaceX, which is the revenue stream. Because it's not like Virgin Galactic plans on doing types of, you know, commercial satellite operations. So it's an expensive type of line, though, to be running for SpaceX. So how important is that going to be going forward? Because it seems like Virgin Galactic is making the bet that it's going to be those commercial tourism flights that's going to be really the big moneymaker, instead of maybe the commercial satellite launches.

CHAD ANDERSON: Sure I mean, these suborbital hops are a bit of a limited market, in our view. There are people who are going to want to go on these 8 to 11 minute joy rides and go up and experience weightlessness, but we've already got orbital tourism coming online. So with the first all civilian crew launching, all civilian mission launching last year, with four non-professional astronauts.

And we're going to see more of that. I mean, that's an expensive proposition right now. But SpaceX is bringing Starship online, fully reusable, enormous vehicle that has the potential to be a Space Station, launch people to orbit to spend extended periods of time there, three to five or more time in space. And to experience, you know, living and spending time in space. And so much richer, much more grand experiences that are much more expensive right now, but the cost is coming down significantly there as well.

So there's competition on all fronts. But, you know, in communications is a massive market. And so that's really going to be a key driver of a lot of the funding for some of these other big picture items that SpaceX is focused on.

BRIAN CHEUNG: All right, well, we'll have to see. Chad Anderson, Space Capital managing partner, thanks so much for stopping by today.