Virgin Galactic (SPCE 3.15%) has big dreams -- the kind that could, if it makes those dreams into reality, turn investors into millionaires. The problem is that big aspirations don't always work out as well as hoped. If you are looking at Virgin Galactic today thinking that it will get you to a seven-figure net worth, step back and consider the risks. Here's a quick look at where the company stands now.
Virgin Galactic has achieved great things
To give Virgin Galactic its due, 2023 was a pivotal year in a very positive way. Simply put, the company proved it could operate a space tourism business, sending its first regular flights into space. That's impressive and the scale of that achievement should be appreciated. In some ways, it has executed extremely well.
Image source: Getty Images.
The problem is this proof of concept wasn't actually expected to be the final step of the process. In the fourth quarter of 2023, Virgin Galactic generated just $2.8 million in revenue while spending $24.3 million to operate its space flights. You don't need a higher degree in mathematics to see that the business is not sustainable as currently configured. But also, it wasn't expected to be.
Virgin Galactic is working on a second generation of spacecraft, called Delta, management believes will allow the company to operate on a cash-flow-positive basis. That is the point at which the company will have proven that its dream of building a sustainable space tourism business is truly possible.
Virgin Galactic has a long way to go
Here's the problem: Virgin Galactic doesn't expect its second-gen spacecraft to take paying passengers into space until early 2026. That's roughly two years from now. Until then, the big story is all the capital investment that will be needed to develop the Delta spacecraft.
In the fourth quarter, Virgin Galactic burned through $114 million supporting its current spaceflight operations and building its new ship. The company has pulled back on its flight plans, shifting from a monthly cadence to a quarterly cadence. This change was made to reduce the cash burn rate. At this point, there is a troubling race between its cash use and the cash it has available to it.
At the end of 2023, Virgin Galactic's balance sheet had roughly $982 million of cash and cash equivalents on it. That sounds like a lot of money, but there are still eight quarters to go before the next generation of spacecraft is up and running, assuming all goes according to plan. If you multiply $114 million by 8 you get $912 million. That's cutting things mighty close and doesn't leave much room for error in what is a very complex endeavor.
It's little wonder that the stock price has collapsed as Virgin Galactic burns through its cash hoard. Yes, the stock could rocket higher if it manages to successfully roll out the Delta class of spacecraft on time and on budget, so it could be a millionaire-maker stock. But there's a huge risk that it falls short of that goal because it could simply run out of cash before it can get the second-generation ship into space.
Probably best to wait
There's no question that Virgin Galactic's story is very exciting, particularly if you are a space fan. But the reality is that the company is in a precarious situation. If everything goes exactly as planned, buying the stock could be a huge investment win. But things normally don't go exactly as planned for any company. Most investors will probably be better off waiting for Virgin Galactic to hit a few more milestones before investing here, because right now, the risks look like they outweigh the potential rewards.
