Virgin Galactic
With Virgin Galactic being the first space tourism company to go public, there was a lot of high hopes and a lot of hype around the stock. Opening at a little below $10 on October 28th, 2019, Virgin made a huge splash in the commercial space industry. This article isn’t going to be about company history but about the recent events in Agust of 2020 about what is happening to their stock price.
Sales
Virgin Galactic is an odd company because many people have bought tickets and stock, but they have yet to fly anyone. That puts them in a weird position where, “Cash position remains strong, with cash and cash equivalents of $360 million as of June 30th, 2020.” but also, “Net loss of $63 million, compared to a $60 million net loss in first quarter of 2020.”
They have lots of money to work with because of all of their investors, but they will not be making money any time soon. We know this from a recent interview where Virgin said, “Virgin added that safety “remains the central focus”, and the flight schedule may change if something unanticipated happens. That said, founder Richard Branson is expected to take his first spaceflight in the first quarter of 2021, marking the soft launch of operational flights for Virgin.”
Along with not flying Branson till 2021, they still plan to do 2 test flights before that. Meaning they will spend quite a bit more money before they start bringing in any sort of recurring revenue.
Negative Effect
With the information of having no revenue, a net loss of $63 million, and delaying flights till 2021, it is no wonder their stock price took a hit. When this was first reported on August 3rd, 2020, their stock went from $24.02 to $22.23.
As of writing this article on Agust 11th 2020, the stock is at $18.35. To show how significant of a drop that really is, in February of 2020 their stock price reached $33.87
As we can see from the stock changes, people are not as hopeful for the company as they once were. I would say that mentality shift comes from people who are not familiar with the commercial space industry. The reason I say that is because that is how most commercial space companies are before they start launching or providing a service.
Many companies are money pits for years until, for lack of better words, they aren’t. Most people do not see that side of space companies, but because Virgin is public, people are able to see how money is being spent.
So what is Virgin doing in the short term?
Short Term Stock Sell
The commercial space industry doesn’t usually make sense when it comes to investment and money. Millions of dollars get invested into companies that may or may not take off the ground. Many of these investments are venture capitalists gambling that the company can produce what they say they can produce.
With Virgin going public, they are hoping to get more money than venture capital, and on August 10th, 2020, they sold more shares to do just that. On August 10th, 2020, they announced “the closing of its underwritten public offering of 23,600,000 shares of its common stock at a public offering price of $19.50 per share, before underwriting discounts and commissions. All of the shares were offered by Virgin Galactic. The gross proceeds from the offering, before deducting underwriting discounts and commissions and other offering expenses payable by Virgin Galactic, were approximately $460.2 million, excluding any exercise of the underwriters’ option to purchase additional shares.”
Selling those stocks gets them enough capital to continue to test fly and potentially enough to get them to their commercial launches. The thing to think about is what happens if it doesn’t? A company can only sell so many shares before they lose too much value. While I do not see that happening anytime soon for Virgin, it is clear that people are losing hope in the company’s worth.
Long term strategy
On August 3rd, 2020, Virgin Galactic signed a “non-binding Memorandum of Understanding (MOU) with Rolls-Royce to collaborate in designing and developing engine propulsion technology for high speed commercial aircraft.”
What they plan on making is a “high speed aircraft design include a targeted Mach 3 certified delta-wing aircraft that would have capacity for 9 to 19 people at an altitude above 60,000 feet and would also be able to incorporate custom cabin layouts to address customer needs, including Business or First Class seating arrangements.”
Basically, they are making a private supersonic jet.
One of the main reasons Virgin is getting into this deal to develop this technology is that they are not going to be making money from their space tourism business anytime soon. Even after they start doing commercial flights, they will need a few years to recoup all of their costs before they end up net positive.
If they can make the supersonic jet within the next few years, they will be able to have another source of revenue to keep them going, and they have the added benefit of splitting the costs with Rolls-Royce.
Weirdly enough, I think they will make more money with the jet than the space tourism side of their business. However, who knows if and when that jet will actually be made.
Final thought
Virgin Galactic is an exciting company to watch because you get an inside look at how some space companies function before making it to market. It is an excellent chance to see how much money gets put into these companies even though they will not be making money for years. I think the stock is too volatile for me to recommend you buy it. However, I will say that it is pretty low now, so if you were going to do it now would be the time. It is a gamble right now, and if you are looking for a big return it will not happen for a few years, so if you are willing to wait, it might be an interesting company to throw into your portfolio but don’t be surprised if the stock doesn’t go to the moon.