Virgin Galactic Holdings (SPCE -5.24%) rocketed higher on Wednesday after earnings, more because of the company's optimistic forecast than because of its actual results. The shares even after that jump are still well off their highs, but investors should exercise caution before jumping on board.
Wall Street wasn't expecting much from Virgin Galactic's fourth quarter, but the company managed to lose a little less than expected. The company reported a $0.31-per-share loss on $141,000 in revenue, compared to analyst expectations for a $0.34-per-share loss on $330,000 in sales.
As the results indicate, Virgin Galactic is very much a work in progress. The company lost a total of $354.8 million in all of 2021, bringing its cumulative loss over the last two years to nearly $1 billion.
The real question is, When will Virgin Galactic begin to make money? The company had originally hoped to begin scheduled service in 2020 prior to Richard Branson's 70th birthday, but after a series of delays has now set a goal to begin service by the end of this year.
CEO Michael Colglazier in a statement said Virgin Galactic is "on track and on schedule" to begin service before the end of 2022, prompting the shares to soar higher.
"We achieved many important milestones in 2021 that laid an essential foundation toward becoming a scaled, commercial operation," Colglazier said. "In recent weeks, we opened sales to the general public and launched our new global consumer brand. Demand for our one-of-a-kind experience remains strong, and we are currently building our operations to accommodate our growing customer base."
Virgin Galactic has a healthy cash cushion, with $931 million in the bank. It also has a roster of potential customers willing to pay upward of $450,000 for a few moments in space. But if the last year has taught us anything, it is that space development rarely goes according to script. And while Virgin Galactic has been battling through engineering issues, new competition including Jeff Bezos' Blue Origin have leapfrogged past the company.
Virgin Galactic, despite shares falling 80% since last summer, is still valued by the market at a healthy $2.27 billion. If it all comes together in the next year the way the company hopes, the stock could fly higher from here. But given that questions still remain about the engineering, the amount of long-term demand for pricey space trips, and the amount of competition, investors who want to buy in would be wise to limit Virgin Galactic to a small, speculative piece of a well-diversified portfolio.