Virgin Galactic Has a Lot to Prove This Year

Virgin Galactic Holdings (SPCE 1.03%), during its short time as a public company, has succeeded in capturing the imagination. But the space tourism start-up has yet to launch any tourists into space.

On this clip from Motley Fool Live, recorded on May 13, Fool.com contributor Lou Whiteman and Industry Focus host Nick Sciple discuss the company's setbacks and its first-quarter results. There is still a lot of potential here, but Virgin Galactic has a lot to prove if it wants investors to buy into that potential. 

Nick Sciple: Let's talk about another company, Virgin Galactic, that you could say is a little bit of a show-me story today as well. The company has had a rough few months. It's down 70 percent off its highs. What's going on?

Lou Whiteman: Yeah, a rough few months for the stock, but honestly, a rough year-and-a-half now for the company. Virgin Galactic of course is space tourism, they want to put you and I into space. You go first Nick, [laughs] but that's certainly whatever you want. The goal was that they would begin service last year by launching Richard Branson into space for his 70th birthday. That was a big milestone, it was much talked about, obviously it didn't come to be. Now, COVID had something to do with that it was harder to do tests, but they've also had a real tough time with their testing. This is a company, the quarter was as bad or as worse, we know this is actually a zero revenue company in the quarter. The analysts had hoped they would have about $300,000 in revenue basically, that was if they were going to do tests, there is going to be some small experiments on board that they would get paid for. The loss of 55 cents per share was worse than expected. But again, I mean, they do have money in the bank, this is a work in progress. The bigger issue is that they have had difficulty getting these tests done. Before it was a problem with electromagnetic feedback in the space capsule. They had set a self-imposed goal this month, May, to resume testing. On their earnings call they said that there is a new issue. There is stress and fatigue with the Eve. Instead of just going up like a rocket, the way Virgin Galactic works is there is a massive plane that carriers a spacecraft into low orbit where it launches from there. Which is a pretty neat way of doing this because it saves on a lot of the expense of that initial push off and fighting gravity at its worst [laughs] at the surface. But it's still very unproven because the Eve is so important to this. They're going to update us next week on when these tests might happen. It maybe they just need to get this figured out and moved on. They are planning a new plane to replace the Eve, but this is just issue after issue after issue. We're still hoping to begin service by the end of 2021, but with every delay you have to wonder about that and, yeah, the stock has traded down as a result. This is still a four billion dollar company with no revenue and a lot of promise. I mean, this is, again, a very cool technology, but you've got to get there and you said "show me"  and right now, they're not giving the market's investors a lot of reason to trust their timetable and believe that it will go later this year, early next year as they hope.

Sciple: I think when Luis Sanchez and I, think we first discussed on the podcast prior to the IPO, a few months before the IPO and what I had said at that time is, it's a company I'm going to watch, I'm going to pay attention to, but it's not what I'm going to be interested in investing in until I see them take one customer on a safe trip up to space and back. It's because this is a really, really difficult thing to do, and if you model out some of the assumptions you have to make for Virgin Galactic, it comes out to putting as many people in space as like has ever been in space on a regular basis. To get from nobody doing it to putting enough people in space on a regular basis to make the business work is a lot of execution between now and there. The company still has a lot left to show us. What are you going to be paying attention to, is there anything else to watch other than waiting for the company to tell us they figured it out?

Whiteman: I think you make a great point because it's a show-me story times two. But yes, first you have to prove you have to do it but then also, this is a very, should we say niche market? [laughs] There are $250,000 to spend a few minutes weightless, it both sounds very cool, but it's not going to be a Coca-Cola business or something like that. I think what we're watching for right now is A, will these tests happen and do they go well, B, once they get going, what that market is, what the competitive position is, and all of that, and yeah, it's possible this will still work out. I think it's a cool thing to believe in and I think it's very binary though. It's also possible that space is hard and this just won't come together or it will come together after a lot of other people figured it out. No one can say for sure, not even inside Virgin Galactic headquarters right now can they say for sure. The big thing is, we need tests to go well and then from there we'll figure out the business and figure out their prospects.

Sciple: We'll see, I'm fairly confident at some point in the future that there will be people going to space for fun who aren't professionals or hired by the government or what have you. Who the company's will be taking those folks and how soon it will happen, I don't have the faintest idea, but when we do, we'll be on the podcast and we'll talk about it.