Share prices of space tourism stock Virgin Galactic (SPCE 3.15%) tumbled as much as 16% in the days following its fourth-quarter earnings release last week. The reason wasn't obvious on the surface.

In its report, Virgin Galactic management noted that its Q4 losses were smaller than analysts had forecast -- only $0.26 per share instead of $0.30 per share. Management also admitted that sales underperformed expectations, coming in at $2.8 million instead of the expected $3 million.

Such a report would seem to set up a good news/bad news kind of quarter for this pioneering space stock ... except for one thing.

Virgin Galactic loses money -- and probably more than you think

As I explained in my initial write-up of Virgin Galactic's quarter, its "good news" on earnings wasn't quite as good as it seemed. Yes, a $0.26 per share loss is better than a $0.30 per share loss would have been. However, one big reason why Virgin Galactic's loss per share was smaller than feared was the fact that Virgin Galactic ended Q4 with a whole lot more shares than it had possessed one year prior.

Between Q4 2023 and Q4 2024, you see, Virgin Galactic issued and sold about 125 million new shares of stock, growing its share count by 45% year over year. Naturally, when you are dividing your total losses among 45% more shares outstanding, the loss per share is going to drop.

Looked at from that perspective, Virgin Galactic's good earnings news seems a bit less significant than its weak performance on sales.

Virgin Galactic's revenue problem

So ... how does Virgin Galactic aim to improve its revenue and avoid missing on revenue going forward? Management addressed this question not in its earnings report, but rather in a post-earnings conference call with Wall Street analysts.

Describing how things stand with the company's reservations for future space tourism flights, and ticket reservations for them, Virgin Galactic CEO Michael Colglazier noted that the company currently has reservations from 725 "future astronauts" who have booked tickets on its spaceplanes.

Now, when Virgin Galactic first started selling these tickets in 2021, it charged anywhere from $200,000 to $250,000 per ticket -- and sold 600 tickets at these prices. In 2022, the company roughly doubled the average price of its tickets to $450,000 -- the price presumably locked in by the company's other 125 or so ticket-holders.

With each Virgin spaceplane flight carrying four paying passengers, this translates into a total of no more than $1 million in revenue generated by most currently reserved flights, rising to about $1.8 million per flight once the first 600 passengers have flown their flights.

The problem is, Virgin Galactic incurred about $500 million in operating costs for its flights in 2022, according to data from S&P Global Market Intelligence. And despite making efforts to cut costs in 2023, it was only able to reduce these costs by about 3.4% -- to $483 million last year. Even at $1.8 million in revenue per flight (once it reaches that point), Virgin Galactic would therefore have to fly at least 268 times per year just to cover its costs and break even.

But last year, Virgin Galactic flew ... seven times.

Big losses beget higher prices

To attempt to bridge this gap between costs and revenue, Virgin Galactic announced last week that it will be raising prices by one-third on future space tourism tickets -- from $450,000 to $600,000 per ticket. But does that solve the problem?

Hardly.

Even $600,000 per ticket, for flights carrying four passengers, will only grow Virgin Galactic's revenues per flight to $2.4 million. It will only reduce the number of flights the company must run to 200, to cover a full year's operating costs. And again, in 2023, Virgin Galactic flew just seven times.

What this means for investors

As a result, it's pretty clear that simply raising prices isn't going to be enough to turn Virgin Galactic profitable. Rather, Virgin Galactic must both fly more often and build more spaceplanes in order to permit it to fly more often (while also raising prices). Of course, the problem with that is that building more spaceplanes is going to cost more money, inescapably raising the very operating costs that Virgin Galactic is trying to cover by flying more often!

If all this sounds like Virgin Galactic is caught in a Catch-22, in which anything management does to solve its problem actually makes the problem harder to solve ... that's because this is exactly what's happening.

And this, in a nutshell, is why I believe Virgin Galactic stock remains a "sell."