How profitable can Virgin Galactic really become? Investment risks outweigh the benefits

Raise your hands if you’ve never been to space.

On Dec. 12, Virgin Galactic’s spaceship test flight was cut short from an engine ignition issue — sending its stock down over 18%.

A successful flight would have moved Virgin closer to serving commercial customers with a final test flight expected over the next 4 months if it had succeeded.

Virgin Galactic, 16 years in the making

Virgin Galactic was founded in 2004 with big ambitions, to take you to space for an affluently affordable cost of $250k.

But the company had faced several setbacks getting here:

• Technical challenges in building a spacecraft plagued Virgin in its first 10 years of operations.
• In 2014, co-pilot Michael Alsbury was killed in a 2014 test flight — delaying the next test flight by 4 years.

Despite the rocky start, Virgin managed to turn things around. Virgin had two successful space flights in Dec. 2018 and Feb. 2019, where each aircraft reached the edge of space — the boundary of Virgin’s commercial flights.

In Oct. 2019, Virgin went public as the first public space travel company through a SPAC — its stock had increased 129% since going public but has been highly volatile since.

The business case of selling space travel

Virgin makes nearly zero revenue but it has received over 600 reservations on its SpaceShipTwo — designed to carry passengers to the edge of space.

At $250k per ticket, this could translate to over $150m in revenue. The initial demand is there, but the timeline to Virgin’s first commercial flight and future profitability is still uncertain.

Sending a spacecraft to space is expensive — after each flight, the company replaces the spacecraft’s engine for $250-275k. This makes up nearly 20% of sales in a full flight of 6 people. On top of that, additional servicing and fueling costs could further lower Virgin’s profitability.

For Investors… Risky space business

Something as ambitious as bringing people to space carries big risks…

• Zero revenue… Virgin has enough cash to last for just under a year if it continues to make no money from space flights.
• Safety… Virgin can’t afford to have any setbacks once it starts flying customers — any accidents would be a regulatory and PR nightmare.

UBS expects space tourism to grow from zero to a $3b market by 2030 and it could become a massive opportunity. But for now, it remains a highly risky investment.

Learn more: Understanding the risks of investing in an emerging industry