Shares of space tourism company Virgin Galactic (SPCE 5.44%) got a massive boost on Thursday after management announced earnings and some cost cuts to the business. Investors reacted by pushing shares as much as 33.3% higher, and the gains have held at 26.9% as of 11:00 a.m. ET.
Virgin Galactic's turnaround plan
Virgin Galactic isn't generating much revenue from its single spacecraft, so investor focus has been on the company's cash runway and development of the Delta Class spacecraft that will be able to fly multiple times per week and carry six passengers, up from four today. And the announcement gave some very positive news on both fronts.
Image source: Virgin Galactic.
Virgin Galactic ended the quarter with $1.1 billion in cash and had a negative free cash flow of just $105 million, as management controlled costs well. It also announced the end of flights with the current spacecraft in mid-2024 and cuts that would eliminate a lot of the spending for those operations. The goal is to put 100% of the company's focus on the Delta spacecraft.
Management also discussed when Delta spacecraft would be flying and what returns would look like. It said Delta testing will start in 2025 and commercial flights in 2026. It also thinks two Delta spacecraft will be enough to get to free-cash-flow positive: "Our $1.1 billion balance of cash, cash equivalents and marketable securities, is expected to be sufficient to achieve positive free cash flow."
Does a rocket stock emerge?
Some questions about Virgin Galactic's future were answered in the third-quarter earnings report and the conference call. Cost-cutting measures are in full force in order to focus on getting Delta launched and the company to positive free cash flow, which likely means no more dilutive stock or debt offerings for the time being.
That was enough to send the stock higher, but it will be years before we know if this is a company that can really execute a turnaround.
