When Virgin Orbit's (VORB +0.00%) first-ever international rocket launch attempt ended in failure in early January, investors punished the stock.
One day after, Virgin Orbit published this disappointing tweet:
We appear to have an anomaly that has prevented us from reaching orbit. We are evaluating the information.
-- Virgin Orbit (@VirginOrbit) January 9, 2023
Virgin Orbit stock subsequently dropped 14%. Now, the good news for shareholders is that despite an ongoing investigation having failed to explain the anomaly, investors appear to have forgotten their initial disappointment. In the three weeks since Virgin Orbit lost its rocket, its stock has gained back 4%.
The bad news is that it probably shouldn't have.
OTC: VORB
Key Data Points
A couple bad rockets are the least of Virgin Orbit's problems
From a performance perspective, Virgin Orbit's record to date isn't really awful for a start-up rocket company. Out of its first six launches, four have successfully reached orbit, and only two failed to do so: Virgin Orbit's first-ever launch attempt, and its last.
Compared to other rocket start-ups -- Astra for example, which has notched only two unqualified successes over nine attempts, or ABL, which is currently 0 for 1 -- Virgin Orbit's 0.666 batting average doesn't look too shabby. From a business perspective, however, I have to say that things look pretty grim for this 2021 SPAC IPO-turned-space stock.
Just take a look at the numbers.
According to data from S&P Global Market Intelligence, Virgin Orbit is burning through cash at an annualized rate of $233 million per year -- except that Virgin Orbit doesn't actually have $233 million to burn. Absent an inflow of cash, or revenue from some successful rocket launches, the company might not survive another year.
Again referring to S&P Global, at last report Virgin Orbit had only $71 million in cash in the bank (against $58 million in debt). Recent cash infusions from Sir Richard Branson's Virgin Investments Limited appear not to be included in this tally, and may raise the company's cash level to perhaps $116 million. But even then, that's only enough cash to cover six months of cash burn.
Space math
It gets worse.
Assume Virgin Orbit can figure out what went wrong with this month's rocket launch and get back on track. Assume it can quickly turn around and begin launching rockets again. How might this affect the company's financial position?
Well, according to data compiled by NewSpace.im, Virgin Orbit charges $12 million to launch a payload of up to 300 kilograms. Thus, the company must launch at least 20 times per year in order to offset its cash burn rate and break even. (And probably even more than that, seeing as rocket launches incur costs as well as generate revenue.) Right now Virgin Orbit isn't launching at anywhere near that rate, though, and losing its last rocket won't help it sell rocket launch services any faster.
At the same time, Virgin Orbit's bigger problem is that if a $12 million price tag is too little to earn it a profit, it's also probably too much to attract a lot of customers. Perusing NewSpace's data further, it appears that the $40,000-per-kilogram cost of a Virgin Orbit rocket launch is roughly eight times the $5,000 per kilogram that SpaceX charges for a smallsat rideshare. It's also more expensive than the prices charged by other small rocket launchers that Virgin Orbit competes against more directly.
ABL, for example, plans to charge just $12,000 per kilogram for payloads up to one metric ton (if it can ever get a rocket off the ground). Astra's new "Rocket 4" will launch for $19,750 per kilogram. Even Rocket Lab, whose Electron rocket now matches Virgin Orbit's LauncherOne payload at 300 kg to LEO, charges only $25,000 per kilogram.
The upshot for investors
This, in a nutshell, is why I won't be investing in Virgin Orbit stock anytime soon. On the one hand, the company's rockets cost more than the competition charges, making it hard to compete on price. On the other hand, even if Virgin Orbit were to lower prices to compete better against its rivals (and there are a lot of them), that would only make it harder for the company to overcome its cash burn and earn a profit.
Unless Virgin Orbit management can figure out a way to square this circle, I don't see this company turning profitable -- ever.
