Virgin Galactic (SPCE 3.15%) has lofty goals. At the moment, however, the space tourism company is years away from achieving what management says is possible. Executing on its big plans will require a lot of things to go right. Here's a quick look at where Virgin Galactic is today and what it would take to get to where it wants to be in the future.
Virgin Galactic pulls in its horns
Last year was a very important one for Virgin Galactic, given that 2023 marked the first time it actually operated a commercial space flight. Essentially, it proved that it could successfully run a space tourism business. Unfortunately, the company also proved something else along the way: It isn't anywhere near the point where it can profitably operate a space tourism business.
Image source: Virgin Galactic.
Some numbers will help. In the fourth quarter of 2023, the company brought in $2.8 million in revenue from space flights. Operating those flights cost $24.3 million. So the company's space tourism business lost $21.5 million in the quarter. That's pretty clearly not sustainable, noting that it doesn't include other expenses that the company faces, including research and development costs and sales, general, and administrative expenses.
It should come as little surprise given this backdrop that Virgin Galactic chose to reduce the number of space flights it operates from one per month to one per quarter. That change won't stop the bleeding, but it will help to slow the flow.
But management is still talking up the long term here, saying that it plans to eventually operate between 300 and 400 space tourism flights per year. Going from 12 flights to as many as 400 is going to require a lot of things to go right.
What's behind Virgin Galactic's goals?
To be fair to the company, Virgin Galactic's current spacecraft wasn't really expected to be profitable. It was a proof of concept to show that space tourism was functionally possible. To that end, the company hit the ball out of the park in 2023. But companies generally need to generate profit if they want to survive over the long term, and the jury is still out on whether that's possible for Virgin Galactic.
The next big goal is to get a second-generation spaceship into space in 2026. Before that can happen, the company needs to complete the factory that will build that spaceship and a companion launch craft. These are big and expensive projects.
And one new spaceship and companion launch vehicle aren't the final goal. To get to 400 flights a year, Virgin Galactic will need at least four spacecraft and two launch vehicles. So 2026, assuming all goes as planned, is just one more step on the ladder to profitability. It will probably still be spending more on building the business than it brings in from the business for many years after that point.
In fact, that goal for the second-generation ship is simply for it to help the company generate positive cash flow. If Virgin Galactic can achieve that, noting that the goal is still nearly two years away, it will have gone a long way toward proving it can sustainably operate a space tourism business. But positive cash flow still isn't earnings, which, in the end, is what investors are most interested in seeing.
Investors should probably watch from the tarmac
Virgin Galactic has set some truly audacious goals for itself. There's something to be said for that, but reaching lofty goals isn't easy to do. If Virgin Galactic can pull off its big plans, then the stock, trading for less than $2 a share, will, in hindsight, be seen as a bargain today. If it can't, well, it's best avoided. Unless you have a very strong conviction about what the company can achieve in 2026, nearly two years from now, you should probably keep this space stock on your watchlist.
If management can keep hitting the milestones it sets, you might want to reconsider it. But if it falls behind, the outcome could be that Virgin Galactic ceases to exist.
