Virgin Galactic (SPCE) shares shot toward the heavens after the space tourism and next generation propulsion business shook up top management, observes tech sector expert Jon Markman, editor of Strategic Advantage.
To be clear, the idea of rich people jumping aboard a largely unproven spacecraft and blasting toward the stars, as a business model, has always seemed a bit out there.
Moreover, the way the company came public was a bit murky. Sir Richard Branson, the founder of the Virgin group of companies, merged his space interests with Social Capital Hedosophia in October 2019. In addition to bypassing the standard initial public offering process, the arrangement effectively surrendered 46.5% of the company to Social.
The nucleus of Virgin Galactic has been around since 2004. The space tourism part of the business caught the eye of Branson, a noted adventure enthusiast. Then in 2010, the company recruited George Whitesides, the former chief of staff at NASA. As chief executive officer, he brought gravitas to the fledgling aerospace firm.
Yet after raising $1 billion, initial testing has mostly been unfruitful. A test flight in 2014 led to the death of pilot Michael Alsbury. Setbacks aside, the company pushed on.
In statements filed with the Securities and Exchange May 2019, Virgin Galactic managers said they planned to launch some 1,500 space tourists by 2023. The hype surrounding this new category has been other worldly.
The stature of a high profile pitchmen like Branson helped sell out a reservation list for the first set of rides to the edge of the Earth’s atmosphere.
The Washington Post reported last October that more than 600 people, including pop star Justin Bieber joined the list. At $250,000 per ticket, the company was sitting on $80 million in reservations, and the promise for even more.
Virgin Galactic announced in February that an additional 7,957 people made refundable $1,000 online reservations for seats on its six passenger SpaceShipTwo vessel, a second spacecraft.
After debuting in the $12.50 range October 2019, shares zoomed to $42.50 by February, helped by a constant drumbeat of news, and mostly positive chatter from investment analysts.
Adam Jones at Morgan Stanley has been among the most friendly. The firm has an extremely positive view of the new space economy. Space tourism, and the idea that a new generation of space-inspired rocket engines for commercial aircraft are closer than many investors believe, is driving that viewpoint.
Lost in the hype over pop stars in space is a 2019 commitment by Boeing (BA). The commercial aircraft giant invested $20 million for a 1% stake in Virgin Galactic. The interest, according to Space News, is point-to-point, high speed passenger travel.
That’s why the current news is so interesting. A Virgin Galactic press release on July 15 said the firm is replacing Whitesides, its current chief, with Michael Colglazier, a 30 year veteran of Disney (DIS) theme parks. Whitesides will remain with the firm in a new role as chief space officer.
In a note to clients Thursday, July 16th, Jonas speculates that Whitesides would not have taken the new position if the company was not prepared to accelerate its point-to-point, or P2P, high speed passenger travel plans. The Morgan Stanley analyst reiterated his overweight rating for Virgin Galactic shares.
Keep in mind, P2P could be a lucrative new revenue stream that most investors are overlooking. Commercial passenger flight has not improved materially since the 1970s. The next generation of aircraft will be worth trillions.
In the interim, shares are shooting higher as investors assume the addition of a chief executive officer with consumer experience suggests commercial, suborbital space flights are close.
Shares could trade back toward the February highs near $42.50. I am not recommending the stock for our portfolios at this time but if you are a risk-taker, consider accumulating a position on pullbacks.
