What happened
The walls are starting to close in on Virgin Galactic (SPCE 3.15%), the space tourism company. The company's stock price has fallen 66% in the past year and as much as 7.3% on Tuesday. At 3:30 p.m. ET, shares are down 5.9% on the day.
So what
The market is falling, and a volatile stock like Virgin Galactic tends to magnify those losses. On top of that, interest rates are rising again with 10-year government bonds in the U.S. rising 12 basis points to 4.8%.
But the problems for Virgin Galactic are more acute. The company has $980 million in cash and expects to burn $120 million to $130 million each quarter for the rest of this year and even then won't be close to free-cash-flow positive. That will take the construction of Delta Class spacecraft that isn't due to be operational until at least 2026. As the stock falls, financial flexibility is getting harder for Virgin Galactic.
Now what
Virgin Galactic is now flying to space on a monthly basis, but it needs to increase both the number of passengers and the frequency of flights to be financially viable. The Delta Class spacecraft intends to do that with six seats instead of four and a weekly flight cadence instead of monthly. But the spacecraft cost $50 million to $60 million and are only being designed and constructed now.
If Virgin Galactic can't raise enough cash to get to the point where it's free-cash-flow positive, which may take until well after 2026, the company may be in trouble.
