A private for-profit company reports near-zero quarterly revenues for every quarter since it first began releasing results. For the first nine months of 2019, it generated revenues of only $3.3 million yet burnt through so much cash that its net loss was $138 million. Any substantial revenue, much less a positive net income, is still years off. Then, it launches an initial public offering last month at $11.80, with the share price rallying soon after to $12.

And the market cap has hit nearly $1 billion. 

Welcome to the personality cult surrounding the Virgin brand name and the near science-fiction world of commercial space travel. Founded by billionaire Richard Branson, one of Europe's wealthiest and most storied entrepreneurs, Virgin Galactic Holdings (NYSE:SPCE) became the first space travel company to go public with a listing on the New York Stock Exchange. 

The new company, created via a merger between Virgin Galactic and Social Capital Hedosophia, is targeting the unproven but highly lucrative market for space tourism. Now ready to build five spaceships, Virgin Galactic expects to send their first batch of 1,500 customers on short space trips by 2021. 

Image of Virgin Galactic SpaceShipTwo and WhiteKnightTwo

Image Source: Virgin Galactic

An unproven yet huge market

As speculative as this venture may sound, many investors see a robust and growing market for private space travel.  There are still investors all too happy to throw money at a great story. And commercial space travel is one of the most unique stories anywhere on the stock market.

Virgin Galactic is the only way public investors can invest directly in space tourism, which is likely to create some demand for the stock on its own. Other firms targeting private sector spaceflight, such as Elon Musk's SpaceX and Jeff Bezos's Blue Origin, are privately held with no plans to go public.

There certainly is a group of well-heeled explorers willing to pay some $250,000 for a 1-hour ride into low earth orbit. Given Richard Branson's acumen as one of the greatest showmen in the corporate world, it is no surprise that Virgin Galactic has attracted strong interest across the globe. As of last September, some 600 people in 60 countries have made advance reservations for a seat on an experimental spaceship for a launch date not yet set. Although Virgin has built one prototype spacecraft, construction has yet to begin on the commercial fleet, which may eventually number 5 spacecraft designated for paying tourists. These tourists are serious: Virgin Galactic already has collected $80 million in advance cash deposits and estimates $120 million in future revenue from the current waiting list alone.

Place your bets

This stock investment is clearly highly speculative, and a long term bet-like ordering a few chips to be placed on a roulette table that does not exist at a casino that has not yet been built. But it is a simple bet to understand. Can Virgin Galactic send tourists into orbit without crashing? If the answer is yes, the business – with a projected 70% operating margin– could quickly skyrocket in valuation. While SpaceX and Blue Origin have expressed interest in space tourism, they are most focused on satellite delivery and, eventually, exploring the moon and Mars. Virgin Galactic, by contrast, is solely focused on tourism and in front of the pack by far in terms of designing the vehicles and pre-selling tickets. They may soon hold a monopoly on the global market for space tourism. 

According to a recent note by Darryl Genovesi, lead aerospace analyst at Vertical Research and a trained aeronautical engineer, "We think SPCE's mission profile is very similar to the X-15, an aircraft which crashed only once in more 199 tries and that was 50 YEARS AGO, meaning SPCE can likely do better."

Virgin Galactic is confident they are right on track to start commercial operation as announced in 2021. "We believe our third-quarter results reflect our ongoing progress as we execute on our strategy toward commercial launch," George Whitesides, CEO of Virgin Galactic, announced in a press release last month.

On the other hand, the company is just one technical error away from disaster. In 2014, a Virgin Galactic experimental vehicle, SpaceShip Two, suffered a catastrophic equipment failure on a test flight and crashed in the Mojave Desert, killing the co-pilot. Manned space flight in experimental aircraft is no walk in the park and carries enormous risk.

The outlook for Virgin Galactic stock is simple. On the upside, by 2021 or soon after that, the company could be ferrying tourists on a 1-hour space flight. At $250,000 per ticket, revenues could grow toward $1 billion. The stock price from the current $9 range could rocket past the $20 level. On the other hand, another catastrophic accident could see the share price tumble into penny stock territory. 

In either scenario, it's a roll of the dice.