If things go as planned, Virgin Galactic Holdings, Inc. (NYSE: SPCE) would script history early next year by commencing commercial spaceflights for the first time. The space agency has been channeling most of its resources for this ambitious project for quite some time, all along generating nil profit and meager revenues. Meanwhile, the preparations were delayed slightly due to the virus-related disruption, as expected.
Virgin Galactic’s stock pared most of the recent gains this week after the company reported a loss for the June quarter and announced more test flights before flying founder Richard Bronson to space, tentatively in the first quarter of 2021. Before the final mission, it has to successfully complete one test flight by year-end and a second one later, with pilots and mission specialists on-board, mainly for evaluating the customer cabin and related hardware.
Although the COVID protocols have created some delays to our process, we have continued to progress with our fleet expansion efforts and we expect to complete assembly of our second SpaceShipTwo vehicle ready for roll-out and commencement of ground testing this year. For our third spaceship, parts fabrication is now over 75% complete and we are expecting to complete assembly and ready the vehicle for testing in 2021.
George Whitesides, chief space officer of Virgin Galactic
Investor sentiment was further dampened when the management announced a private offering to fund the project. At slightly above $20, the stock is fairly priced and has the potential to create value for investors in the long term, which is justified by the positive target price. The market will be closely following the progress of the pioneering mission that is expected to herald a new era of suborbital spaceflights.
Gaining an Edge
The company has been striving to strengthen its foothold in the field of space exploration, positioning itself to effectively compete with Elon Musk’s SpaceX (TSLA), and Blue Origin, an initiative by Amazon (AMZN) chief Jeff Bezos. The coming days will be crucial for Michael Colglazier, the Walt Disney (DIS) veteran who took over as Virgin Galactic’s CEO last month, succeeding George Whitesides.
The company has secured approval for certain key processes involved in carrying customers to space and also conducted several test flights, setting the stage for next year’s mission.
Zero Revenue in Q2
During the three months ended June 2020, the company incurred a loss of $0.30 per share and did not generate any revenue. It ended the quarter with an EBITDA loss, on an adjusted basis, of $54 million and a cash balance of $360 million. Meanwhile, the headline numbers missed market watchers’ prediction.
Research and development costs will remain elevated in the foreseeable future, putting pressure on the bottom line. Even after achieving technological feasibility, it will be a long time before the company starts capitalizing on the high vehicle costs.
‘One Small Step’
The company’s strength is the success of its One Small Step program, which continues to elicit interest among customers despite the suspension of the marketing campaign temporarily in the wake of the pandemic. There has been an increase in paid enrolments for orbital spaceflights, though operations are partially affected by the shutdown. One good thing is that the enrolled customers remain unfazed by the economic downturn and continue to participate in the program.
In a related development, the executives on Monday clinched a deal with Rolls-Royce to develop engine propulsion technology for Virgin Galactic’s supersonic aircraft, driving the stock higher during the regular session. The supersonic jet, the design for which was unveiled this month, is claimed to be the fastest ever commercial aircraft, capable of traveling at the speed of 2,300 miles/hour.
“Earlier today, we made an announcement unveiling the initial design concept for our high-speed vehicle effort… We are designing the aircraft for a range of operational scenarios including service for passengers on long-distance commercial aviation routes. Aircraft would take off and land like any other passenger aircraft and integrate into existing airport infrastructure and international aerospace around the world,” said George Whitesides, Virgin Galactic’s chief space officer.
The stock suffered a pull-back during Tuesday’s regular trading, after closing the previous session at $22.45. The company’s market value more than doubled since going public in October last year.
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