Virgin Galactic is selling stock again — and it won’t be the last time.
Well, Galactic 01 is in the record books — and it was a glorious success for Virgin Galactic (SPCE -8.27%).
Departing Spaceport America in New Mexico just after 11 a.m. ET Thursday, Virgin MotherShip Eve climbed to altitude and released its Virgin SpaceShip Unity at 11:33 a.m. ET, allowing the latter to ignite its engine and blast its way to the very edge of space, with three Virgin Galactic employees and three Italian Air Force passengers aboard.
And it’s important to emphasize this: Paying Italian Air Force passengers.
When Unity touched down back at Spaceport America 16 minutes later, Virgin Galactic brought to a close its first-ever revenue-generating commercial space tourism flight, and ushered in an era where not one (Blue Origin) but two space companies (Blue and Virgin) are now offering paid tourist flights to space and back.
Virgin Galactic’s math problem
Of course, it still remains to be seen if Virgin Galactic (or Blue Origin for that matter) can turn a profit from this new type of tourism business.
As I’ve previously outlined, Virgin Galactic is currently only able to carry at most six passengers per space tourism flight. At a ticket cost of no more than $250,000, and a flight cadence of no more than once per month (Virgin says it will hit this cadence in August, by the way), that works out to only about $1.5 million per month in revenue for Virgin Galactic.
That’s not a lot of revenue to support a company that is currently carrying operating costs of about $500 million a year, $125 million a quarter, or more than $40 million a month. In order to offset the high costs of building a space tourism business, Virgin Galactic simply must accelerate the number of flights it can conduct every month, quarter, and year.
For that, Virgin Galactic is going to need a lot more spaceplanes. And building each of those new spaceplanes, says Virgin Galactic, is going to cost $50 million to $60 million.
Where will Virgin Galactic find the money?
Luckily for Virgin Galactic, it has a solution to this problem, and (perhaps unluckily for investors) it comes in the form of selling more stock.
Last week, Virgin Galactic announced that in order to raise the cash necessary to build out the fleet of multiple new “Delta class” spaceplanes it needs, it has been selling stock — and plans to sell even more. According to the company, Virgin Galactic raised $300 million by selling nearly 60 million shares over the last 10 months. The company noted that it plans to sell another $400 million worth of stock in the future.
At the company’s current share price of about $4.25, that works out to about 94 million more shares coming on the block. Consider that at the end of 2021, for example, Virgin Galactic only had about 258 million shares outstanding (according to data from S&P Global Market Intelligence). That means that pretty soon, more than one in every three Virgin Galactic shares in existence will be a “new” Virgin Galactic share, created and sold largely to raise the cash needed to build its new fleet of Delta class spaceplanes.
Will it be enough money?
Now, that probably sounds bad. The more new shares Virgin Galactic issues and sells, the more slices the Virgin Galactic “pie” gets chopped up into — and the smaller the slices remaining for anyone who bought into the stock before the dilution happened.
But there’s good news here as well as bad.
By my calculations, Virgin Galactic needs to build at least eight new Delta class spaceplanes, each capable of flying once per week, in order to have even a chance of generating enough revenue to offset its operating costs. At $50 million to $60 million each — let’s say $55 million as an average cost — it will therefore cost Virgin Galactic $440 million to build the fleet it needs to become profitable.
The good news, therefore, is that the $300 million Virgin Galactic just finished raising, plus the $400 million more that it hopes to raise, should easily cover this construction cost — and leave $260 million over to cover the losses the company incurs as it builds out its fleet.
Added to the $830 million or so that Virgin Galactic has in the bank, and the revenue coming in from space flights with Unity, this could be enough money to keep Virgin Galactic in business through mid-2025, or (if Virgin Galactic finds a way to cut costs even as it ramps operations) even the start of 2026, when the first Delta class spaceplanes are expected to begin arriving.
It’s going to be awfully close, though. Personally, if I were an investor in Virgin Galactic, I’d anticipate at least one more multi-hundred-million-dollar stock sale will be needed, sometime in the next two years, to bridge the gap and carry Virgin Galactic stock the rest of the way to profitability.
My advice: If you’re going to invest in the stock, bear this in mind, and expect a bit more dilution to come.