2021 has been a rough year for Virgin Galactic (SPCE 2.90%), both as a company and a stock. The year started with hope that commercial space flights would be taking place by the end of the year, which would lead to millions of dollars in revenue. But as we enter the fourth quarter of the year it seems that delays and investigations into the company by regulators have been more common than flights.
Despite the ups and downs, I'm still very bullish on Virgin Galactic, and on space tourism and travel more broadly. This is a company that's building a disruptive business under the spotlight of public markets, and that's made the mission even more difficult. Here's what to like, and where I see some caution ahead for the stock.
Image source: Virgin Galactic.
Virgin Galactic is going to space
Taking a step back, it's worth noting that Virgin Galactic did fly a crew to space, and streamed the trip live for the world to see. That's a notable accomplishment, even if it wasn't a paid commercial space flight.
With disruptive companies like Virgin Galactic, sometimes it's important to take a step back and appreciate what has been accomplished. The company has its own spaceport, it has spacecraft that have flown into space and returned safely, and it's preparing to open up those spacecraft to civilian customers. That's a truly revolutionary concept for any company.
Safety first
My first principle when investing in Virgin Galactic is that safety has to come first for everyone in the business. If anything bad happens to passengers or crew, it could be the end of the company. So I'm happy to see safety being put over speed when it comes to reaching commercial flight regularity.
Earlier this year, management investigated a flight where the onboard rocket motor lost connection and found electromagnetic interference, or EMI, was the issue. This delayed test flights, including founder Richard Branson's first flight.
I wrote about this delay extensively in March and my takeaway was that Virgin Galactic was putting safety over speed when planning its flights. Investors didn't like the news, but that was the right strategy for the company long-term.
In September 2021, another delay was announced after a "third-party supplier recently flagged a potential manufacturing defect in a component of the flight control actuation system," pushing back Unity 23, a revenue-generating flight with the Italian Air Force. Again, Virgin Galactic is putting safety before speed -- and as an investor, I think that's the right priority as I hold this growth stock long-term.
Prices are astounding
After Richard Branson's flight, Virgin Galactic also opened up reservations for future space flights, and the eye-watering ticket price of $250,000 got a little more eye-watering. Management said that tickets now start at $450,000. That's a crazy price, but it also implies that prices could be even higher for some flights.
In its SPAC merger presentation to investors, Virgin Galactic projected 1,565 passengers flown per year by 2023 (or the third year after commercial operations began). That may be pushed back, but at $450,000 per ticket, revenue could be $704.3 million per year ($590 million was projected), and EBITDA would likely exceed the $274 million management projected when it called for $590 million in revenue.
We don't yet know what kind of demand there is for tickets at $450,000 apiece, but the fact that management felt comfortable putting prices there is a great sign for the business long-term.
The insider sales concern
The one concern I have is that two of Virgin Galactic's biggest insiders have been selling shares of the company. Chairman Chamath Palihapitiya and Richard Branson have collectively sold over $1 billion in stock in the past 18 months. Insider sales are generally not a positive for a newly public company.
Palihapitiya said he was selling for liquidity and to fund climate change-related investments, and Branson said it was to prop up his airline and hospitality businesses, which have struggled during the pandemic. These are reasonable reasons to sell, but investors should take note of any major insider sales -- and these two, in particular, selling has given me a little bit of pause.
Disrupting how we think about space
Owning shares of Virgin Galactic won't likely be a smooth ride, but the company is trying to make space travel accessible to millions of people, and that's a truly disruptive mission. I think this could be a company we look back on a decade or two from now and see a transformational vision, which is why I'm holding long-term. And the last year has had some positive signs for investors, despite the volatility along the way.
