This space-age company is growing at double-digit rates, readying for its first flights next year.
Virgin Galactic Holdings, Inc. (SPCE)
From Cabot Global Stocks Explorer
The commercialization of space has captured the imagination of many, including those with a lot of cash to burn.
• Elon Musk spent $100 million in 2006 to launch Space X.
• Jeff Bezos is reportedly injecting $1 billion a year into Blue Origin.
• Blue Origin hopes to go the moon for passenger trips by 2024 while Musk has Mars in his sights, with SpaceX planning its first cargo mission to the red planet in 2022. A crewed mission is to follow a couple of years later.
Since 2000, Goldman Sachs estimates that $13.3 billion has been invested in space startups.
We certainly have come a long way from Sputnik 1, the first satellite launched by the Russians in 1957. Incrementally lower costs, new technology, and increased commercial activity could make space the next trillion-dollar industry.
And one of the most intriguing segments of the space economy is space tourism. Dennis Tito paid $20 million to become the first space tourist in 2001 while prepaid tickets for 90-minute suborbital flights in 2020 with Virgin Galactic Holdings, Inc. (SPCE) went for a cool $250,000. Virgin’s flamboyant and well-connected entrepreneur Sir Richard Branson has brought in heavy hitters like Chamath Palihapitiya, a billionaire tech investor and former Facebook executive.
More than 600 people from 60 countries have secured a spot on one of Branson’s first space flights by making a deposit representing half the total fare price, accounting for $80 million in deposits and $120 million in potential revenue. Virgin has an additional 2,500 people on the waiting list.
Virgin Galactic operates the reusable SpaceShipTwo spaceflight system, the world’s first passenger carrying spaceship to be built by a private company and operated in commercial service. Virgin Galactic was founded and won the X Prize for its SpaceShip One in 2004. The company has been at the forefront of commercial space activity and produced the first private space vehicle to put humans into space.
Credit Suisse recently concluded that that Virgin would have a “near-term monopoly” on the space tourism market once Spaceship Two begins operations in 2020.
Boeing’s venture capital arm HorizonX took a $20 million minority stake in Virgin Galactic Holdings, Inc. (SPCE) to help Sir Richard Branson’s company develop a vehicle to travel Earth at hypersonic speeds.
Branson confirms that space tourism flights will begin within a year and he expects profitability by 2021. The cost of a Virgin flight on SpaceShipTwo, which can hold seven passengers and two pilots, is $250,000. I agree with a just-released Morgan Stanley report that equates the space tourism company to a biotech in terms of risk/reward and that the big payoff down the road will be hypersonic point-to-point travel.
While a business jet takes 11 hours to fly from Los Angeles to Tokyo, a hypersonic vehicle traveling at nearly five times the speed of sound could make the same journey in just two hours.
The chief risk is of course the possibility of a failed or unsuccessful flight, which would, without question, hit the stock hard. For this reason, I see Virgin as an aggressive idea and recommend a 20% trailing stop loss.
As I have done my research, I’m been impressed with the seriousness of this enterprise and the team of investors and management that has been pulled together to prepare for the 2020 launch of private flights.
BUY A HALF.
Carl Delfeld, Cabot Global Stocks Explorer, www.cabotwealth.com, 978-745-5532, December 5 & 12, 2019