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Is Virgin Galactic A Good Investment In The Space Race?

Virgin Galactic hit a new 52-week low, sending shares below its initial public offering price more than two years after its market debut.

Virgin Galactic (NASDAQ: SPCE) shareholders have been laid bare to some violent price swings amid hype and speculation since its debut. From reaching heights of $62.80 per share in February 2021, the company’s stock has fallen more than 75% since, now sitting in the region of $12 per share, roughly where shares began trading two years ago. 

What does Virgin Galactic do?

Virgin Galactic is a space tourism company founded by seasoned U.K. entrepreneur Richard Branson with the company going public via one of Chamath Palihapitiya’s special purpose acquisition companies (SPACs) in 2019. It offers customers a once-in-a-lifetime opportunity to travel to space — albeit for just a couple of minutes — and that experience comes with a hefty price tag, $450,000 per seat!

Virgin Galactic had its first successful spaceflight in July 2021 which garnered plenty of social commentary, and it now looks towards 2022 for its next batch of orbital flights. 

Virgin Galactic’s Financials

Losses narrowed for Virgin in Q4 2021 to $48 million, compared with a $92 million loss in the same quarter in 2020. The company is experiencing a serious cash burn at the moment but has a strong cash position of $1 billion on hand for investment activities. Virgin has roughly 700 reservations booked so far, aiming to increase this figure to 1,000 in the future and it wants to boost the number of commercial spaceflights considerably in 2023. 

Virgin Galactic’s Growth Potential

A recent report from Northern Sky Research expects 57,500 people to make their way to space over the next decade, estimating cumulative revenues of over $20 billion for the space tourism industry.

While the industry is gaining momentum, it’s a very limited market opportunity, given the pricing point of flights — it’s really an experience only the ultra-wealthy can indulge in. This year will see Virgin Galactic fulfilling flights for more ticketholders but even still, timelines are extremely uncertain. Even at this rate, there could be more unexpected delays. Virgin also has competitors to worry about, the most prominent being Jeff Bezos’ Blue Origin, but more and more companies are trying to get their space travel efforts up and running.

Conclusion

There’s definitely no sugar-coating it. Virgin Galactic is an extremely risky offering that’s not for the faint of heart — and when it comes to a potentially game-changing opportunity like this, investors are always going to have to pay a premium, even without a concrete roadmap to future profitability.

It would be foolish for any investor to allocate more than a small percentage of a portfolio to an investment like this, but with that being said, if the company’s efforts pay off, the potential rewards could be massive.

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