by Douglas Messier
Virgin Galactic’s wild roller coaster ride on Wall Street continued over the past week as Richard Branson’s spaceline marked five months as a publicly traded company and 13 months since the last launch of its SpaceShipTwo suborbital tourism vehicle.
Since debuting on the New York Stock Exchange at $12 last Oct. 28, the stock soared to a high of $42.49 on Feb. 20 before sinking to $10.49 on March 19. Over the past week, the stock has risen again; it reached $14.68 in after-hours trading on Monday.
The stock’s high point came five days before Virgin Galactic’s first quarterly earnings call on Feb. 25. The company reported a higher than expected loss of $55 million and revenue of only $529,000 for the fourth quarter.
Officials also indicated Virgin Galactic would not reach its goal of completing flight tests and beginning commercial flights by mid-year. Officials said they were still aiming to fly Branson on that first operational launch by the end of 2020.
This is a story they have told before. The company has made numerous predictions for when commercial flights would begin since 2004, only to watch them all slide into the rear view window. So, time will tell.
During the earnings call, Virgin Galactic announced that it has received 7,957 “registrations of interest” from people about flying aboard SpaceShipTwo.
The company also announced it would again start taking $1,000 deposits on future ticket sales. Virgin Galactic had suspended sales after the first SpaceShipTwo, VSS Enterprise, was destroyed during a flight test in October 2014.
Virgin Galactic has said it currently has 603 reservations from future passengers who have paid $200,000 or $250,000 apiece. The company raised the price in 2013.
The company plans to raise ticket prices again for new reservation holders. Officials haven’t revealed the new price yet. However, they said the company will charge premium prices for customers who, for example, want to fly with a celebrity or buy out all the seats on a flight.
The registrations of interest and the taking of new deposits did little for the stock price, which immediately began to decline. After closing at $34.04 on Feb. 25, the stock declined to a low of $10.49 on March 19.
It should be noted that stocks were down overall during the same period due to the economic effects of the global coronavirus pandemic.
Last week, Morgan Stanley analyst Adam Jonas decided the stock had slid far enough. He upgraded it from equal weight to overweight while lowering his price target from $30 to $24.
Jonas’ explanation for this decision is fascinating:
“Despite the modest adjustments to our space tourism [discount cash flow model], the company maintains a healthy cash position (~$500mm) and its expected ~$16mm per month cash burn (MSe $180mm in 2020) position it well to navigate any near-term headwinds.
Looking ahead, the company has emphasized the importance of each step of the testing process and learnings from each mission to help make continuous refinement (i.e., fatigue dynamics, stress testing) of the spacecraft to optimize reusability, quick turn-around, cost and, of course, safety.
We expect this process of continuous refinement will ultimately be measured in years and will continue concurrently with the early commercial missions, for which we conservatively model below management expectations.”
In other words, nothing much has changed. Virgin Galactic still has a lot of money left from its reverse merger with Social Capital Hedosophia, which allowed it to go public five months ago. And it is continuing its 15.5-year long crawl toward flying tourists on suborbital joy rides.
After depressing the stock price, it seems the coronavirus pandemic is now helping to raise it again. As Barron’s Al Root noted in a story titled, Virgin Galactic Stock Soars Because Covid-19 Can’t Hurt Companies With No Sales:
Through it all, shares were up about 12% year to date before Tuesday’s upgrade-fueled jump. That’s far better than comparable drops in the S&P 500 and the Dow Jones Industrial Average.
One reason Galactic has held up better is—ironically—because it doesn’t have sales yet. The company expects to start flying tourists to the edge of space in 2020. The lack of sales appears to be insulating the company from some of the worst of the Covid-19 fallout.
It’s a strange situation, but bullish investors still believe in the promise of space tourism as well as other opportunities the company is pursuing. In the future, Galactic wants to expand from space flight into hypersonic travel—that is, travel at about five times the speed of sound. In theory, a cross-country flight might take only an hour.
It has been those promises that have kept the excitement around Branson’s spaceline going despite the company’s inability to launch a single paying passenger since 2004. The hope and the hype have far out distanced the company’s modest achievements.
To date, there have been only nine powered flights of SpaceShipTwo, one of which ended with the loss of the first vehicle, VSS Enterprise, and co-pilot Mike Alsbury.
The two most recent flight tests of the second SpaceShipTwo, VSS Unity, in December 2018 and February 2019 exceeded 50 miles, the minimum definition of where space begins. The vehicle hasn’t flown since.
Against those achievements one must weigh the high costs in dollars and lives. Branson has spent more than $1 billion developing SpaceShipTwo. The program has also suffered two fatal accidents that have claimed four lives and landed four other people in the hospital.
Virgin Galactic hasn’t finished SpaceShipTwo’s flight test program yet. It has been 13 months since VSS Unity last flew under power. That is a long time to interrupted a flight test program.
Company officials said engineers have spent the time since the last powered flight fitting VSS Unity‘s passenger cabin with four seats and making improvements to prepare the ship for a high flight rate.
Virgin Galactic has achieved other milestones during this period. The company outfitted its facilities at its operational base at Spaceport America in New Mexico and relocated employees there.
The WhiteKnightTwo mother ship, VMS Eve, was also relocated to Spaceport America. Last month, it returned to Mojave to pick up VSS Unity and transport it to New Mexico where it will complete its flight test program.
The company also reached a “weight on wheels” technical milestone with one of two new SpaceShipTwo vehicles being manufactured at the Mojave Air and Space Port. A second ship is also under construction.
Last November, Virgin Galactic launched an Astronaut Readiness Program for its existing ticket holders. Participants received some initial training as well as stylish flight suits that Under Armour designed especially for Virgin Galactic.
All of these are good steps, but the program won’t really regain momentum until flight tests resume. When that will be is unclear given the constraints imposed to stop the spread of the coronavirus.
New Mexico has issued a stay at home order for its residents and closed all non-essential businesses. The federal government has also extended social distancing and other restrictions until the end of April.
California’s government also has closed non-essential businesses and order its residents to stay at home. On Monday, I saw empty parking lots outside the facilities of Virgin Galactic and its manufacturing arm, The Spaceship Company, in Mojave.
Virgin Galactic has coasted on hype and hope since Branson unveiled plans for SpaceShipTwo in September 2004. Time will tell whether it can ultimate keep its extravagant promises remains to be seen.