Virgin Galactic : SpaceX Minus The Hype?

SPCE: Virgin Galactic Holdings logo
SPCE
Virgin Galactic Holdings

Virgin Galactic (NYSE:SPCE) is an aerospace company focused on suborbital spaceflight for private individuals and researchers. The company hasn’t been able to generate much buzz, unlike the Elon Musk-backed SpaceX, considering that it is still in the test phases and doesn’t generate meaningful revenues as of yet. That said, things are likely to change in the next few quarters, as it likely begins commercial space flights carrying paying space tourists from 2021, charging each passenger about $250,000. The stock currently trades at about $19 per share, translating into a market cap of under $4 billion. So what exactly are the factors driving Virgin Galactic’s Revenues And Valuation?

How Does Virgin Galactic Make Money?

  • Virgin will primarily make money by carrying tourists on its space planes. Customers will be able to experience a few minutes of weightlessness and also see the curvature of the Earth’s surface.
  • The company has signed up about 600 future passengers, taking deposits of about $80 million. It has indicated that roughly 9,000 more prospective customers had expressed interest as of April 2020.
  • Virgin’s Spaceship Two space plane can carry 6 passengers and 2 pilots. While the company currently has one vehicle, that can be re-used, the second and third vehicles are expected by the end of 2020 and 2021. [1]
  • If we assume 50 flights over 2021 at full occupancy, this would translate into 300 passengers carried for the full year.
  • As the company charges customers about $250k per ticket currently, total passenger revenues would stand at about $75 million in 2021.
  • Besides this, the company has also been generating some revenue by carrying payloads into space and if we assume that this will remain flat at about $4 million, total revenues would stand at $79 million for 2021.
  • Our interactive analysis What’s Driving Virgin Galactic’s Revenue & Valuation? allows you to modify key drivers to arrive at your own estimates for the company’s revenue and stock price.

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Virgin Galactic’s Outlook And Valuation

  • Virgin Galactic is currently valued at a market cap of about $4 billion, or about $19 per share. This translates into a P/S multiple of about 50x based on our projected 2021 revenues.
  • While this does make the company a risky bet, given that it has yet to generate meaningful revenue, the upside could also be significant.
  • Demand for space tourism is likely to grow among high-net-worth individuals, as the technology matures and commercial flights commence. For perspective, UBS estimates that space tourism will be a $3 billion market by 2030. [2]
  • There are larger markets that Virgin could eventually target using its space ships, including high-speed point-to-point international travel via outer space. This could pit the company against traditional long-distance airline flights. UBS estimates that this market will stand at about $20 billion by 2030.
  • There could be a scarcity premium at play as well. While the broader space exploration sector has seen a lot of interest in recent months after privately-held SpaceX launched its first manned mission in late May, Virgin is the only publicly listed commercial human spaceflight company.
  • For perspective, SpaceX was valued at about $36 billion as of its February funding round. (related: What Is Driving SpaceX’s Revenues & Valuation?)

While Virgin Galactic might offer significant upside, it comes with a fair bit of risk. If you’re interested in larger-cap stocks that look set to outperform, check out our 5 In S&P 500 That’ll Beat The Index: TWTR, ISRG, NFLX, NOW, V

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Notes:
  1. Virgin Galactic Investor Presentation, September 2019 []
  2. Human Spaceflight Could Be a $23 Billion Industry by 2030, Bloomberg, March 2019 []