Once upon a time, Virgin Galactic (NYSE: SPCE) had the space market to itself -- but no longer. The only pure-play space stock on the market when it went public in 2019, it soared some 370% over the next 20 months and ignited interest in a whole series of "me-too" space stocks that came public during the pandemic.
But my, how the mighty have fallen. Today, Virgin Galactic trades for roughly $1 a share and flirts daily with penny stock status. At any moment, it might receive a warning letter from the New York Stock Exchange threatening to delist its stock if it doesn't raise its share price significantly.
Now there's some good news here for investors: If and when Virgin Galactic does receive a warning letter from the NYSE, it has a plan in place to reverse split its stock, raise the price of its shares, and avoid delisting. Not everyone would applaud this outcome, but it would at least be better than getting booted off the NYSE.
There's also the potential for Virgin Galactic to grow its share price the old-fashioned way, by growing its business, turning its profit margins positive, and building a viable space tourism industry. Virgin Galactic has a plan for that, too.
Problem is, it's not very realistic -- at least not in the timeframe that many investors expect.
Virgin Galactic's grand plan
Earlier this month, Virgin Galactic released its first-quarter earnings report -- its final report before shutting down space tourism flights, and space tourism revenue, for the next few years. In a post-earnings conference call with analysts, Virgin Galactic laid out the specifics of how this will work:
Virgin will launch its final revenue-generating space tourism flight utilizing the VSS Unity spaceplane, "Galactic 07," on or about June 8.
Flights will resume aboard a pair of new Delta-class spaceplanes sometime in 2026.
Virgin Galactic's Unity mothership, VMS Eve, will also be able to launch Deltas to orbit. The company will upgrade Eve so it can fly roughly every other day, supporting a cadence of three tourist flights per week. (A new mothership will arrive to take over this mission from Eve in 2028.)
Even before that happens, though, upgrading Eve will permit Virgin to fly its two Deltas 125 times per year (or more often than once per week, per spaceplane). With six paying passengers per flight, that translates into 750 passengers per year. Added to the 24 passengers who have flown so far, and the four who will fly in June, Virgin Galactic should run through all the customers who have already reserved tickets at prices up to $250,000, as well as those who reserved tickets at prices up to $450,000, within the first year of Delta flight operations.
Virgin Galactic's space math
So what does this mean for Virgin Galactic and its business?
Management forecasts that, once the Delta planes begin flying, it will generate "roughly $450 million in annualized revenue within the first 12 months following entry into commercial service." But that promise doesn't mean what you probably think it means.
Based on what we know about the number of tickets Virgin Galactic has already sold (800 total), the prices it sold them at, and the rate at which it plans to fly passengers to work through its backlog, Virgin Galactic will probably generate no more than $232.5 million in its first year of Delta-flying: $142.5 million from 570 tickets sold for as much as $250,000 each, plus a further $90 million from 200 tickets sold for as much as $450,000 each.
What Virgin Galactic isn't telling you
Admittedly, even $232.5 million sounds like a lot of money -- and it is. In fact, according to historical data compiled by S&P Global Market Intelligence, it's almost exactly 10 times all the revenue Virgin Galactic has ever generated from its business to date. Still, it's only about half the revenue that Virgin Galactic will need to cover its operating costs, which exceeded $480 million last year.
And this means that, even if everything goes exactly as planned, Virgin Galactic still won't be profitable in 2026, even if it flies 125 flights ... using spaceplanes that don't yet exist ... and a mothership that wasn't originally designed to fly anywhere near this many times per year.
So what does Virgin Galactic really mean? Turns out, Virgin's "$450 million" prediction is based on a projected $600,000 ticket price, and it refers to revenue that Virgin Galactic will get only after it has flown the 800-odd passengers who signed up at lower prices. In other words:
First, Virgin Galactic must fly 770 passengers. This may happen all in the first year that Deltas begin flying -- or it may take several years to accomplish. Either way, Virgin Galactic will no more than $232.5 million for this work. And only after it is accomplished might Virgin Galactic generate its hoped-for $450 million a year. (And even then, this won't be enough to cover operating costs.)
Long story short, Virgin Galactic remains a long way away from becoming a profitable business.
I'm not saying it won't ever happen.
I am saying it's going to take a lot longer to happen than most investors assume.
Should you invest $1,000 in Virgin Galactic right now?
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
