Virgin Galactic (SPCE 3.15%) has big plans for the next three years that could, quite literally, make or break the company. The key date is January 2026, less than three years away, but that's much further away than it may seem. In fact, the company is so worried about reaching its goal that it recently pulled back on its current space flight schedule. Here's what you need to know about the next three years at Virgin Galactic.
Virgin Galactic's backstory
Virgin Galactic's goal is to create a space travel business, transporting everyday people beyond the Earth's atmosphere. It reached some very important goals on this front in 2023. On May 25, 2023, the company announced that it had completed a test spaceflight. The successful flight was intended as a test of the entire flight process, setting up the company's first commercial flight, which Virgin Galactic announced was a success on June 29, 2023.
Image source: Virgin Galactic.
Following that, the company began regular operations, with flights taking place monthly for five months. The problem with these flights is that they are really just a proof-of-concept effort -- they aren't expected to make the company any money. For example, in the third quarter, Virgin Galactic had revenue of $1.7 million but space flight expenses of $25.6 million. That's clearly not sustainable. The expectation is that the next generation of spacecraft will be the key for the company turning cash flow positive in 2026.
This is where things start to get interesting. The next three years will, effectively, determine whether or not Virgin Galactic has a real business or not.
Virgin Galactic makes it
If you are a glass-half-full type of person, buying Virgin Galactic today requires that you believe it will successfully develop its Delta class ships. This next generation spacecraft is larger than the current spacecraft being used and, thus, can generate more revenue per flight. Perhaps more important, the research and development (R&D) costs currently going into the Delta class ships will drop once they are flying into space. Looking at the income statement, R&D was a roughly $45 million expense in Q3.
Of course, there's more than just R&D being spent right now, since there's also infrastructure that has to be built to support the company's production and flight efforts. Overall, the company had negative cash flow of $105 million in Q3. However, given the company's cash balance of around $1.1 billion, the current cash burn rate suggests Virgin Galactic has around 10 quarters of cash before it runs out of money. The first Delta flight is expected in early 2026, which is roughly eight quarters away. That even leaves a tiny bit of wiggle room for expenses to rise or for a small delay.
It might be a little touch and go, but there is reason to believe that Virgin Galactic can achieve its stated goal. It just requires a lot to go right along the way, making strong execution vital.
Image source: Getty Images.
Virgin Galactic falls short
The risk, of course, is that something will go wrong. A cost overrun, a major delay, or a disaster of some kind (traveling into space is risky) could upend the company's plans and leave it short on cash. What's notable here is that Virgin founder Richard Branson has stated that he does not intend to provide any more cash to Virgin Galactic. He believes it has enough cash, which it seemingly does if everything goes exactly as planned. However, this is not a particularly compelling show of support and should probably worry investors more than give them confidence in the future. Very rarely in life does everything go exactly as planned.
Then there's the fact that Virgin Galactic has announced plans to reduce the pace of space flights it is conducting. While it is true that the concept has been proven, so there's no particular need to fly monthly, shifting to a quarterly cadence is really just a money-saving move. It should allow the company to slow the cash burn from running money-losing space flights, and it can reduce staffing levels, further reducing ongoing operating costs.
That improves the chances of getting to cash flow positive in 2026, but cutting back like this is the type of thing that a company does when it is worried that a financial goal may be out of reach. This is probably the right move, but it isn't a particularly reassuring one from an investor standpoint.
In other words, there are very real reasons for investors to worry that Virgin Galactic will fall short of its goal, given the decisions that it and its financial backers are making. Given cash available and spending needed, most conservative investors will probably be better off erring on the side of caution here.
Very little middle ground
Given the huge cost of building a space tourism business, Virgin Galactic currently finds itself in something of a light switch situation. If it succeeds in getting the Delta craft operating on time and on budget, it will have a business in three years' time. If it encounters any problems or delays, there's a very real possibility that Virgin Galactic will end up in bankruptcy court. A new cash infusion could solve this stark dichotomy, but with Branson on the sidelines, it isn't exactly clear who would step in to bridge any gap that might arise.
So, in three years, Virgin Galactic could be a cash flow positive space tourism business -- or it could, very realistically, be out of business. Tread carefully if you are investing here.
