Virgin Galactic (SPCE 2.64%) stock has gotten hammered this week, as investors are selling following the company's latest successful flight into space. Even Richard Branson flying on the latest mission wasn't enough to get investors excited about the shares. But there are some positives to take from a bad week for this growth stock.
While some observers may be underplaying the excitement of a few minutes in weightlessness in space, there may be more willing buyers of tickets than currently assumed. UBS estimates that Virgin Galactic will be raising ticket prices from $250,000 apiece to between $300,000 and $400,000, and thousands of buyers could line up. Here's a look at how big the potential market for these tickets could be.
Image source: Virgin Galactic.
A new adventure for the rich
The ticket price of $300,000 may seem crazy to you and I, but there are lots of people for which that's a drop in the bucket, and they're already spending tens or hundreds of thousands of dollars flying around on private jets.
- The U.S. alone has 614 billionaires, according to Forbes.
- There are 20,600 people in the U.S. with a net worth over $100 million, CEO World reports.
- There are 13,392 private jets owned by individuals in North America, according to Statista. In California alone, there are 212,270 chartered flights per year.
- Private jet flights range in cost, but a flight on a mid-size jet can easily cost over $20,000, and the cost per flying hour for a large jet can be $78,000, according to travel magazine AFAR. In other words, a cross-country flight can cost about as much as a ticket to space with Virgin Galactic.
I point these numbers out because we already know that wealthy people spend a lot of money each year on travel. And a $300,000 ticket to spend a few minutes in space isn't going to break the bank, especially when it's a comparable number to a private flight across the country.
To put the cost of a $300,000 ticket into perspective, for someone with a $100 million net worth, the ticket would cost at most 0.3% of their net worth. For comparison, someone with a net worth of $83,333 would spend about the same percentage of their wealth spending $250 to go skydiving.
What's amazing is that Virgin Galactic's early reservations weren't limited to these ultra-high net worth individuals. Seventy percent of pre-orders were from people with a net worth under $20 million. So the company's target market could be about 2 million people with a net worth over $10 million.
A $300,000 ticket for most of us is an insane amount of money, but for the wealthy, it's a drop in the bucket. And for a once-in-a-lifetime experience, it could be worth it even for "regular" rich people.
Cost increases may be short-lived
In its presentation to investors in 2019, Virgin Galactic's management implied that it will eventually lower ticket prices dramatically. In discussions about the total addressable market, it pointed out that about 50,000 people have a net worth over $50 million and could reasonably afford a $500,000 ticket price, while 1.78 million people had a net worth of over $10 million and could pay $100,000 for a ticket. But management also pointed out that 5.07 million people had a net worth over $5 million and could pay for a $50,000 ticket.
This wasn't a projection of future ticket prices, but as flights increase in volume and the high capital cost of a spaceport and spacecraft can be spread over more flights, it's possible ticket costs come down dramatically.
If ticket prices go up in the short term, it could be an indication that there's more than enough demand at a higher price for limited supply. But don't be surprised if costs eventually come down and tickets become accessible to millions of people around the world.
Opening up a new thrill ride
A few minutes in a weightless environment may seem like an unnecessary and wasteful experience to some, but for wealthy thrill-seekers, it may be worth the price of admission. There's no shortage of yachts and private jets around the world and they don't even provide the unique thrill of being in space.
According to Virgin Galactic, fewer than 600 people have ever been to space, so it's an experience a limited number of people have ever had. Virgin Galactic could eventually put more than 600 people in space every year. And by the look of it, there's a large number of people who may be willing to pay $300,000 for the privilege of taking that exclusive flight.
