Virgin Galactic Stock Is a Bet on the Future of Space Travel. How Much Is That Worth?
Virgin Galactic’s SpaceshipTwo.
The stock of space-tourism and technology company Virgin Galactic is on an epic tear, leaving some value investors scratching their heads. Why is a company with, essentially, no sales worth billions? That question misses the point. Virgin Galactic has ambitions to become more than a space-tourism operator. It wants to bring hypersonic flight to the masses.
Start with the epic stock run. Shares have gained about 190% year to date and up more than 360% over the past three months, crushing the comparable returns of the S&P 500 and the Dow Jones Industrial Average. What’s more, Virgin Galactic (ticker: SPCE) warrants —issued by the company giving investors the right to buy a share for $11.50—are up more than 520% year to date and 1,370% over the past three months.
Investors must be really excited about space tourism. Galactic plans to take thrill-seekers up to the edge of space and back for about $250,000 per trip. The company said it has received more than 8,000 inquiries about its flights when it reported fourth-quarter numbers–its first quarterly report as a publicly traded company–Tuesday evening. Inquiries grew more than 100% since the end of 2019. A lot of people want to experience weightlessness.
That’s not all Virgin Galactic wants to be known for. “There is demand for higher speed flight,” Virgin Galactic CEO George Whitesides tells Barron’s. Whitesides is qualified to talk about high-speed flight. He’s was the chief of staff at NASA and a fellow at the U.K. Royal Aeronautical Society as well as a fellow of the American Institute of Aeronautics and Astronautics. What’s more, he’s a pilot certified parabolic flight coach.
(Investors shouldn’t feel sheepish if they don’t know what a parabolic flight coach does. Those are flights designed to simulate zero-gravity, or weightlessness. Barron’s had to look it up too.)
“We’ve been stuck at Mach 0.85 for a generation,” adds Whitesides. Mach is the engineering term for the speed of sound, about 767 miles per hour. Travelers once had higher speeds available to them via the iconic Concord jet. It cruised at more than 1,300 miles per hour, making it a supersonic flight. Hypersonic speeds are above Mach 5, more than 3,000 miles per hour.
“At those speeds, you need a hybrid engine,” explains Whitesides. In this case, he’s talking about combining turbine jet engines, which have, essentially, spinning parts, with ramjet engines, that use the forward motion of the plane to compress the air. It’s technically complex and one reason hypersonic travel is expensive.
But there are pockets of hypersonic development. Militaries around the globe are investing in hypersonic technology. That could be a source of business for Galactic, although there are no firm plans yet. And Galactic’s hypersonic technology could take a Tesla-like (TSLA) approach to the market, targeting high-net-worth individuals interested in higher speed flight. There is, after all, an existing market for multi-million dollar private jets.
Tesla initially sold $100,000-plus vehicles to rich automobile owners. The company has been cutting the costs of its models over time, and now offers some base models for less than $40,000.
None of the hypersonic sales in the future are assured. Hypersonic private jets aren’t on the near-term horizon, and Whitesides didn’t discuss how much a hypersonic jet program would cost to develop. But even commercial aerospace giant Boeing (BA) is interested in the technology. It has invested $20 million in Virgin Galactic. Galactic, while it remains an early-stage, pre-revenue company, has $480 million of cash on its balance sheet.
“Our work with Virgin Galactic, and others, will help unlock the future of space travel and high-speed mobility,” said Brian Schettler, senior managing director of Boeing HorizonX Ventures, in an earlier statement that Boeing referred Barron’s to.
