There is enough worry to go around for investors today, but there’s no denying the heightened sense of concern surrounding those with a stake in Virgin Galactic
Recent reports have suggested that Virgin Atlantic, the UK-based airline founded by billionaire Richard Branson, may not live to see 2021. Branson is also the head of the world’s first publicly traded space travel company, Virgin Galactic (NYSE: SPCE), and with his $5.8 billion fortune tied up in saving his global business empire, could this really be the final frontier?
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An overview of the space sector
Once believed to be in the realms of fantasy, trips to the stars now appear to be just around the corner, and Virgin Galactic was at the forefront of this idea. They aren’t the only ones though: Tesla (NASDAQ: TSLA) CEO Elon Musk has ‘SpaceX’, Amazon (NASDAQ: AMZN) founder Jeff Bezos has ‘Blue Origin’, while the likes of Boeing (NYSE: BA) and Lockheed Martin (NYSE: LMT) have also got skin in the game.
And then the coronavirus hit.
Rather than all the billionaires in the world jumping on rocket ships bound for faraway, pandemic-free worlds, the world’s elite has been forced to remain on earth with the rest of us peasants. But that means that earthly problems such as revenue streams, profits, board members, and investors must be dealt with.
Morgan Stanley (NYSE: MS) estimates that the global space industry could generate revenue of more than $1 trillion by 2040, up from $350 billion currently. SpaceX reportedly logged $10 billion in revenue between 2018 – 2019, making it a lucrative sector. Unfortunately, Virgin Galactic is not earning a slice of that expensive pie just yet.
How is Virgin Galactic performing?
Before all of this pandemic-driven madness, Virgin Galactic was on a roll, despite having very little to report in its first two earnings reports as public companies. Between December 2019 and mid-February 2020, the company had jumped nearly 300%. Then it reported its Q4 earnings…
The company reported a loss of $55 million, more than the $46.9 million loss expected, and only generated $529,000 in revenue for the fourth quarter of 2019, down from $800,000 previously. The company also announced it would be upping its initial $250,000 ticket price for trips to space, and claimed to have 600 confirmed signups, on top of 7,957 showings of interest.
Investors reacted as you would expect, and the stock plummeted from $37.35 per share to $10.56 in less than a month. It has since gained roughly 70%, and as of April 29 is trading at $17.56 per share, up roughly 45% from its October 2019 IPO price.
Can Virgin survive a pandemic?
I remember writing an article not long ago entitled:
In it, I spoke about SPCE as an investment:
“By all traditional metrics, Virgin Galactic is a ludicrously over-priced and over-hyped stock. Investors pour in while it proceeds to make no money whatsoever. Yet, should a company that calls itself “the world’s first commercial space line and vertically integrated aerospace company” be judged by traditional metrics?”
Well, as an investor myself, I am worried by this pandemic, because we are no longer in the longest bull market in history, and must take companies at face value. ‘Potential’ is always a strong metric, but not when you’re up against the wall and on your last legs.
Not only is Virgin’s primary benefactor, Richard Branson, on the brink of watching his prized assets collapse, but the company’s partner is also Delta Airlines (NYSE: DAL), which has more than its fair share of problems. Even Berkshire Hathaway (NYSE: BRK.B) CEO Warren Buffett began dumping airline shares, including 13 million shares in Delta and 2.3 million shares of Southwest Airlines (NYSE:LUV).
When the Oracle of Omaha is dumping your shares, you know you’ve got problems.
So, what does this mean for Virgin Galactic?
Without sugarcoating it, this is bad for Virgin. It’s two main investors, Delta and Branson, are bleeding money elsewhere, meaning they have less cash to spend on speculative space ventures. As well as that, the last time we heard from Virgin on the subject of earnings, there weren’t any earnings to speak off.
The losses are stacking up:
- $42 million loss in Q1 2019.
- $44 million loss in Q2 2019.
- $51 million loss in Q3 2019.
- $73 million loss in Q4 2019.
Should the economy plunge into a recession, which is looking likelier by the day, and with the airline industry expecting recovery to take years, it is hard to see how anything short of a bailout or massive investment will get Virgin Galactic safely through this economic asteroid field.
For now, all investors can do is strap in, brace for turbulence, and wait and see what guidance the company provides at its May 5 earnings call.
MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here.