Virgin Galactic (SPCE +8.57%) celebrated the successful completion of its first commercial spaceflight on June 29, 2023 -- but you wouldn't know it judging by the company's languishing stock price. Despite the applaudable milestone and a strong rally leading up to the flight, shares of the space industry leader have all but given up those gains to trade nearly 60% below their 52-week high as of this writing.
So what's an investor to do?
I'm still personally holding most of the Virgin Galactic shares I bought around the time when it went public via a 2019 SPAC merger, and believe the stock could deliver outsized returns for patient investors as Virgin Galactic works to achieve its longer-term vision. But make no mistake: This remains a very high-risk stock that should comprise only a small part of investors' portfolios. With echoes of its now-bankrupt spinoff Virgin Orbit still ringing in my ears, I won't hesitate to sell if Virgin Galactic has any significant missteps along the way.
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Key Data Points
The start of something big?
Aptly dubbed "Galactic 01," Virgin Galactic's inaugural commercial ascent was a flawless paid research mission with an incredible livestream showing four delighted members of the Italian Air Force traveling to the edge of space and back.
Virgin Galactic now plans to fly its first paid group of private astronauts on "Galactic 02" in early August, followed by monthly spaceflights thereafter as it steadily works through a backlog of around 800 "future astronauts" who've already reserved their tickets. For now, per the maintenance and flight frequency limitations of its VMS Eve mothership and VSS Unity spaceship, Virgin Galactic cannot fly more than once per month.
To that end, Virgin Galactic will simultaneously continue to progress the development of its future fleet to scale the business, starting with its next-generation motherships (capable of flying 200 times per year) and "Delta" class spaceships (capable of flying once per week). Assuming the timelines provided by Virgin Galactic hold true, the first of these next-gen motherships and spaceships are expected to enter service in mid- to late-2025.
Virgin Galactic is also planning to build a network of spaceports, with agreements signed for locations in the UAE and Italy in addition to its current Spaceport America location in New Mexico. In 2020, CEO Michael Colglazier teased that each spaceport could generate annual revenue of $1 billion by hosting up to 400 flights per year.
Looking even further down the runway, Virgin Galactic could be poised to disrupt long-haul flights and intercontinental air travel as its ticket prices inevitably fall from the current $450,000 ask. According to UBS, around 150 million passengers per year fly routes longer than 10 hours. If only 5% of those long-haul flights were replaced by hypersonic point-to-point travel via space at $10,000 apiece, it would represent an industry opportunity worth over $80 billion per year. With its entire market cap standing at just above $1 billion as of this writing -- and assuming the company doesn't massively dilute current shareholders through stock-based compensation and capital raises -- Virgin Galactic could generate incredible alpha for shareholders in the process.
A short leash
However, I'm keeping the stock on a short leash even as we progress through this crucial inflection point in Virgin Galactic's story. I'll strongly consider selling if the company experiences any significant hiccups as it works to scale its commercial flights.
Why?
To be blunt, I've grown tired of Virgin Galactic's propensity for overpromising and underdelivering -- and that's even without considering its long history of failed promises prior to becoming a publicly traded company. With each delay or unmet target, Virgin Galactic is unwittingly chipping away at the resolve of even the most patient investors.
In its initial SPAC presentation from late 2019, for example, Virgin Galactic outlined goals for commencing commercial spaceflight in 2020, then scaling to five vehicles, 270 flights, and nearly $600 million in revenue by 2023.
Even as late as May 2022, Virgin Galactic told investors it was targeting commencing commercial spaceflights with two spaceships completing three spaceflights per month by mid-2023.
Yet here we are, far behind schedule with an $874 million cash hoard that will last another two years at most, assuming continued negative free cash flow in the range of $120 million to $140 million per quarter. That means Virgin Galactic's current cash position will be exhausted just in time for the first of its Delta class spaceships to roll off the line.
So what constitutes a "significant misstep" in my mind? A catastrophic event in flight would obviously be an automatic sell trigger, making it virtually impossible for Virgin Galactic to continue operations let alone raise capital. Recall even Virgin Orbit struggled to raise cash late last year, abandoning a planned share offering before its own failed flight in January essentially doomed the business.
Otherwise, I'm being intentionally subjective here. Any number of unfavorable events could impact its efforts to scale and reduce that cash burn if they cause unexpected delays of a few months or more. Though I'm still hopeful that Virgin Galactic can deliver on its vision and handsomely reward shareholders in the process, I'm going to demand near-perfection from the company going forward now that commercial flights have begun.
