Virgin Galactic (NYSE: SPCE): Space Remains Speculative

After a two-month rally took shares up 500% through February of this year, investors got an idea of just what shares of spaceflight company, Virgin Galactic (NYSE: SPCE) can do. As the company continues to progress towards full scalability and operations, they can expect to see plenty more eyebrow-raising moves, both ways.

For context, that move into February was followed by a 80% drop into March as the coronavirus put paid to any equities with a hint of risk, let alone those trying to commercialize space travel. But from those lows, shares are already back up more than 150%. Suffice to say that for those thinking about getting involved, an iron stomach will be needed.

Virgin Galactic No Revenue Reported

The company reported its Q2 earnings on Monday and gave us a look at how the internal engine is looking. From a high level, it’s not looking great. EPS was slightly more in the red than expected and a full 60% deeper than the same quarter last year. Management also reported less than $400 million in cash which, for a company that’s stretching the limits of humankind's exploration, feels kind of low. EPS was the only headline number reported as they generated zero revenue in the quarter while in 2020 as a whole, they’ve taken in less than $200,000. This figure and that from previous quarters has mostly come from selling early bird flight tickets at $250,000 a pop to, so far, around 600 people.

Management must have been feeling a little poor as they announced a fresh stock offering as part of the report to help build up their bank account. About 20,500,000 shares will hit the market and should generate the guts of $500 million which they will hope is enough to get the company to full launch. With two successful suborbital test flights under their belt already, the company’s Chief Space Officer, George Whitesides, thinks that only one or two more might be needed to satisfy the FAA’s licensing requirements. And before the end of 2020, they’re already expecting to have completed that many more.

Virgin Galactic Progress Being Made

So there’s definitely some momentum building from a progress point of view. The company recently unveiled the interior of their spaceship and have laid out what customers can expect from the experience. By the first quarter of next year, they’re planning to have launched company founder Richard Branson into space with commercial flights beginning shortly afterwards.

Notwithstanding the speculative nature of the shares right now, Wall Street hasn’t been afraid to buy into the hype. Morgan Stanley were out last month with a bull case scenario valuation of $120 billion, 24x the company’s market cap on Monday. The previous week, Alembic Global Advisors initiated coverage with an Overweight rating, with analyst Peter Skibitski noting how "SPCE's mid-term financial projections could make it one of the most attractive business models in our coverage universe, as it posits EBITDA margins of >46% by 2023, which would be the highest in our group by far, and years of growth".

Skibitski estimates around 150 flights a year will be needed to have the company cash flow positive and this should be attainable by 2023 if not 2022. As we’ve seen with Nikola (NASDAQ: NKLA) already this summer, investors haven’t been afraid to buy into a stock that’s still some years away from generating revenue and that shouldn’t stop them with Virgin Galactic. If the company continues to check off major milestones like it’s doing, it won’t be long before we’re seeing solid revenue numbers appearing in each earnings report.

However, for the foreseeable future investors should expect a position in the stock to be as bumpy as spaceflight taking off, so fasten your seatbelts and keep your hands inside the vehicle.