Last week the Federal Aviation Authority granted Richard Branson’s space tourist venture, Virgin Galactic, the license it requires to launch tourists into space. Shares in the company rocketed by 40% on Friday as a result of the announcement.
Virgin Galactic’s successful test flight on May 22nd of this year concluded one of their final test programs. Richard Branson, the Virgin Group Founder, is believed to be taking a flight later this summer before commercial flights begin as early as next year. If so, he will be one of two billionaire entrepreneurs to be heading for space this year, with Amazon and Blue Origin founder Jeff Bezos heading into orbit on July 20th.
However, despite the promising announcement and the success of its testing program, shares gave back some of their gains when the markets reopened on Monday, as of Monday afternoon shares had dropped by more than 1%.
Many analysts remain skeptical of the company’s business model and these doubts may have capped Virgin Galactic’s soaring value.
Turbulent skies ahead?
Research firm Paragon Intel is one company that isn’t convinced.
Analysts at the firm said they didn’t expect the company to be in a position to begin commercial flights this year. But, of bigger concern was Virgin Galactic’s order books, they have not added to the current reservation list of 600 customers since 2018. They also expressed concerns that the company is already too restricted in capacity to service even these existing reservations, or to meet consensus revenue expectations in 2025.
In their report, the analysts noted that – “Virgin Galactic will need eight tested and fully operational ships by 2024, as well as 900 cumulative single-use motors, neither of which is supported by the company’s current supply chain. FAA approval following a successful test flight does not change the economic viability or long-term value of the business.”
The company’s revenue stream is also a concern to investors. Until they can begin commercial flights, the company has no viable income stream. Last year they posted a net loss of $377 million, and for the first quarter of this year, the figure was even grimmer with a net loss of $130 million. Virgin Galactic’s cash stood at $616 million at the end of the first quarter, a drop of $50 million from the proceeding quarter.
Analysts have forecast that the company will spend $500 million over the next three years and this has prompted prospects of it seeking to raise capital. A possibility that the analysts at Paragon Intel agree with –
“Virgin Galactic will burn through available cash within two years and require additional equity to fund development and production. Even under fantastical assumptions, Virgin Galactic’s shares are overvalued. Under more reasonable assumptions, however, shares have limited to no value.”
Wall Street doesn’t see the company making a profit until 2024 at the earliest and even then it is expected to be modest, estimated at around $40 million net.