Virgin Galactic (NYSE:SPCE) is a good news, bad news story. And it’s important to note that the company is reporting some good news. But right now, there’s some bad news too. And all of that is serving as an anchor on SPCE stock.
First the good news. Virgin Orbit, a branch of Virgin Galactic is scheduled to perform its first “orbital rocket launch” the weekend of May 23. This will be the final test of its Boeing (NYSE:BA) 747 aircraft-based system. Virgin Orbit’s parent company, Virgin Galactic, intends to send paying tourists on rides at the edge of space. By contrast, Virgin Orbit is using a retired commercial jet to launch rockets which will then launch satellites into orbit.
Better still, the company says it has more than a dozen launches lined up after the testing is complete. And most of those launches are from private companies.
However, there’s also bad news. In early May, Sir Richard Branson sold 2.6 million Virgin Galactic shares through Vieco 10, an investment company owned by Branson’s Virgin Group. However, the announcement came just a few days after Virgin Galactic announced they would be selling up to 25 million shares of Virgin Galactic common stock to help shore up ventures that have been slammed by the novel coronavirus.
Now to be clear, the sale, which is approximately $41 million, only amounts to approximately 2% of the company. And Branson’s firm still owns over 112 million shares. But by the looks of SPCE stock dropping over 8% on the announcement of the sales, investors are not impressed.
Virgin Galactic Is Not Making a Profit
In February, Virgin Galactic reported a larger-than-expected EBITDA (earnings before interest, taxes, depreciation, and amortization) loss of $55 million. Analysts surveyed by FactSet were projecting a loss of $46.9 million. That took the company’s net loss for 2019 to $210.9 million.
At the time, Virgin Galactic said it was expecting to be profitable by 2021. However, that was before the Covid-19 pandemic changed the entire landscape of the global economy. In its most recent earnings report on May 5, the company once again missed on both earnings and revenue. This time the company reported an EBITDA loss of $53 million.
One Small Step Won’t Be Large Enough
Back in February, Virgin Galactic launched an initiative called “one small step.” Virgin Galactic received $1,000 refundable deposits from 400 customers who wanted to be the first tourists in space. If all of these customers pay the full cost of their ticket (reported to be $250,000), Virgin Galactic could make $100 million in revenue.
But the key word in that statement is “refundable.” These are not actual sales at the moment. And right now, with the economy teetering into recession, the company realizing all $100 million of those dollars seems like more of a science fiction movie than reality. Presently, Branson is making it clear that his first priority is to keep his travel businesses. That’s probably the right thing for Branson’s business. But it’s not a reason to buy SPCE stock.
SPCE Stock Continues to Have Many Hurdles
You’re familiar with the saying “rob from Peter to pay Paul.” But it would help if Peter was making a profit. Virgin Galactic is an enticing proposition. The promise of space travel, even if it’s not quite Star Wars has a lot of appeal.
I’m sure there would be an audience of well-heeled customers who have the money to spend on a once-in-a-lifetime adventure. And Virgin Orbit may have an audience for its “air launch” system. The bottom line is the company may make revenue.
But space travel in itself is a hurdle. When I wrote about the company in March, I was concerned that the company had come into existence based on a reverse merger, but most of the institutional investors had long pulled out.
As I see it, Virgin Galactic needs everything to go right. And that’s going to be made harder when the owner needs to siphon $41 billion to help shore up other businesses.
My feelings about Virgin Galactic have not changed. Show me revenue and customers before I consider SPCE stock a good investment.
Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for InvestorPlace since 2019. As of this writing, Chris Markoch did not hold a position in any of the aforementioned securities.