The pandemic stock market bubble was a wild time. Start-ups were going public at what seemed like a daily rate, and most of them had shaky business models. We don't need to rehash the meme stock fad, which may have been the most ridiculous part of the last few years.
One quintessential pandemic bubble stock was Virgin Galactic (SPCE 3.15%). The space tourism company was funded by billionaires Chamath Palihapitiya and Richard Branson, going public through a special purpose acquisition company (SPAC) in late 2019. Even though the company had an unproven business model and generated virtually zero revenue, investors loved the idea of a "space economy" stock and bid it up to astounding heights. At one point in 2021, Virgin Galactic had a market cap of $12 billion.
Today, Virgin Galactic shares are down 98% from all-time highs as the business continues to burn money and dilute shareholders. Is there any hope left for this pandemic favorite? Let's investigate.
A lot of talk, few results
Virgin Galactic likes to talk a lot about its operational milestones and future plans. This makes sense as a young company. In a recent earnings release, it talked about hitting a rate of two spaceflights in two months, using its space vehicles for scientific research, and a new Delta Class Spaceship on pace for service in 2026.
Go back further, and the company has the same optimistic tone. In its first earnings presentation as a public company in early 2020, Virgin Galactic talked about the space economy hitting $1.5 trillion in 2040, millions of high-net-worth individuals as potential space tourism customers, and disrupting the international travel market with spaceships. Sounds exciting.
But if we look at Virgin Galactic's achievements, they don't live up to this grandiose vision. The company has only performed seven total launches this year, two of which were for testing purposes. Through the first half of 2023, the company generated $2.26 million in sales and has barely made a dent in its space tourism goals. For reference, another space economy company, Rocket Lab, has generated $232 million in revenue over the last 12 months. Private company SpaceX is reportedly significantly higher than that.
SPCE Revenue (TTM) data by YCharts
No revenue means no profits
If you thought Virgin Galactic's revenue generation was bleak, its underlying profitability is much worse. Even though management said in its recent earnings release that the company has a strong financial position, it's also on track to run out of money soon.
On the $2.26 million in first-half revenue, Virgin Galactic posted an operating loss of $303 million. Annualized, that is $606 million. With tons of overhead costs in research and facilities, Virgin Galactic is going to need to get to a much larger scale in order to stop losing money. It currently has $903 million in cash on the balance sheet, giving it a little more than a year before it runs out of money.
It is no surprise, then, to see the company dilute shareholders in order to raise money. Virgin Galactic's shares outstanding are up 57% in the last year, which hurts any long-term shareholder of the stock. Generally, good companies are ones that reduce their shares outstanding through share repurchases. Virgin Galactic is the opposite.
Conclusion: Do not buy the dip
Seeing the stock down so much, you might get tempted to buy some shares of Virgin Galactic. With the share price below $2, why not take a flyer and buy a few shares?
This is the wrong way to look at investing. The actual share price of a company is meaningless and doesn't change anything about the underlying business. Virgin Galactic has a bleak future and could be on a path to filing bankruptcy within the next few years. Stay far away from this stock unless a miracle turnaround takes place.
