On Monday, Virgin Galactic Holdings Inc. (SPCE, Financial) announced that it has signed a “Space Act Agreement” with NASA’s Johnson Space Center. Under the agreement, the company will develop a “private orbital astronaut readiness program” modelled after its existing tourist training program.
Following the news, the company’s stock jumped 14% to around $17.06 per share in midday trading.
Virgin Galactic CEO George Whiteside had the following to say in the announcement:
“We are excited to partner with NASA on this private orbital spaceflight program, which will not only allow us to use our spaceflight platform, but also offer our space training infrastructure to NASA and other agencies.”
The agreement did not provide detail on what NASA plans to pay Virgin Galactic for the training program.
All in all, the company’s future profits are still a highly speculative thing. The fledgling space tourism company has a little over 600 reservations lined up for future commercial customers, with each ticket bringing in a deposit somewhere between $200,000 and $250,000 (representing deferred revenue).
First-quarter highlights
According to its earnings report for the first quarter of 2020, the company has now cleared 24 out of the 29 Federal Aviation Administration’s Verification and Validation provisos, but it has expressed interest in purchasing seats for customers aboard SpaceX’s Crew Dragon spacecraft in order to get operations going as swiftly as possible, and the price of that venture (if it comes to pass) is also still in the air.
The company boasted no debt and $419 million in cash and cash equivalents at the quarter’s end, though this should not be misinterpreted as resulting from Virgin Galactic’s own profits – at least, not profits resulting from business operations.
Currently, the company has not attempted to fly a commercial passenger to space, so this segment generates no revenue. Part of the revenue comes from engineering services that the company provides, which totaled $238,000 in the first quarter of 2020, but this is only a small portion of the company’s funding. Most of the money comes from selling shares, siphoning money from the founder Sir Richard Branson’s other businesses and other forms of outside investment, which has so far managed to more than cover the company’s expenses.
During the quarter, the company spent $34 million on research and development compared to $31 million in the prior-year quarter, while the operating loss was $60 million compared to $42 million. Revenue totaled $238,000 for the quarter compared to the prior-year amount of $1.7 million, as the company received no outside investment income during the observed period.
Potential market
Due to the Covid-19 crisis, the thriving market that enabled ample funds to be diverted to Virgin Galactic has become crippled. In response, Branson is prepared to sell as much as $400 million worth of his shares in the company in order to raise funds. Branson’s Virgin Group, which he owns an 81% stake in, announced in May that it would offer 25 million of its Galactic shares, not all at once but “from time to time.” This represents approximately 11% of the total shares outstanding as of June 22.
There aren’t exactly many publicly traded space tourism companies on the market for comparison, but with its research-intensive nature and an operating margin of -6,820%, it is not surprising that the stock has so far behaved more like a development-stage biotech company than the aerospace and defense industry that it belongs to.
As for the company’s potential addressable market, it has recently added NASA as a customer for its training services, with the government organization potentially becoming a commercial space flight customer once Virgin Galactic’s main future revenue source is up and running. In addition to the 600-plus customers that have preemptively purchased their tickets, another 9,160 have shown dedicated interest online.
Conclusion
Virgin Galactic is still in its speculative stages, much like a development-stage biotech. As long as it can keep the funding coming, it is likely to generate outsized profits for investors someday. For now, the main focus is on clearing the FAA’s verification program.
NASA’s decision to rely on the space tourism company to train astronauts represents that the U.S. government organization has faith in its ability to become a successful company.
However, prospective investors may want to ensure that they’re in it for the long haul, as the share prices of companies with no steady organic revenue streams can be extremely volatile. Case in point, after rising 428% from Dec. 5, 2019 through the U.S. stock market’s peak on Feb. 19, Virgin Galactic shares fell 73% through the end of March and then bounced back up by more than 50% again through the present day – truly an eventful roller coaster ride.
Disclosure: Author owns no shares in any of the stocks mentioned. The mention of stocks in this article does not at any point constitute an investment recommendation. Investors should always conduct their own careful research and/or consult registered investment advisors before taking action in the stock market.
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