<p>Since its release in November, the stock chart for Virgin Galactic (NYSE: SPCE) has described exactly what it is selling. The shares shaved up for a moment and have now fallen back to earth.
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Virgin Galactic was created to sell space tourism. It plans very short flights over the atmosphere starting later this year. But now the Richard Branson startup has even bigger visions of its space planes that get people from Los Angeles to Tokyo in just two hours.
It’s an attractive idea. InvestorPlace Will Ashworth recently compared it to Tesla (NASDAQ: TSLA). But Virgin Galactic does not just have the problem of scaling to handle. It still has to get off the ground.
What works for SPCE shares?
Virgin Galactic’s fourth quarter report has many beautiful pictures. It also has a net loss of $ 73 million in revenue of $ 529,000. At the end of the year, the company had $ 480 million in the bank, after raising $ 552 million in the public offering.
The company has built a good team under the leadership of Chamath Palihapitiya, chairman of the board, an early Facebook (NASDAQ: FB) manager who calls his venture capital firm Social Capital Hedosophia. I like the cut of the man’s jib, as they say, but his reputation is largely based on Virgin’s successful IPO.
Virgin Galactic has signed partnership agreements with Boeing (NYSE: BA) and Under Armor (NYSE: UAA). Its product is a developed form of Burt Rutan’s SpaceShipOne, which made a short flight from an aircraft in 2004 to become the first private spacecraft.
Virgin Galactic has recently taken $ 1,000 “reservations” for future flights. This is compared to the Tesla deposits that helped finance the company. But you do not buy today’s Tesla, you buy the 2010 version, which was a company that had not yet made a car.
What Virgin Galactic lacks
All Virgin Galactic lacks is a company.
By that I mean that all the company’s milestones so far are either financial or preparatory. It has not achieved commercial spaceflight. It hopes to have five planes in traffic by 2023, but it has not yet taken a single commercial passenger.
In other words, Virgin Galactic is a startup run on public capital.
There is nothing technically wrong with that. If you have “crazy money” you can afford to lose, and many did so late last year, SPCE shares are just as good to burn some. But how many people are willing to spend a quarter of a million dollars to go into orbit in a few minutes?
I’m old enough to have seen this movie before. It was called Concorde, and it failed. So far, Virgin Galactic is just a smaller, faster and even more expensive version of it.
That’s why InvestorPlace’s Ian Bezek and Josh Enomoto are both skeptical of the company.
Bullish analysts talk about its financial technology, its redemption of early warrants, which ends the threat of dilution. But this is economics, not aeronautics.
The conclusion of the SPCE share
Virgin Galactic is a product of the last decade of optimism. Its history has nothing to do with the reality of the 2020s.
If you have a few dollars that you can afford to lose, then dream the dream.
Just remember that some dreams become nightmares. Richard Branson has been doing business like this for decades, ever since music came on vinyl records. In any case, those who stayed too long with him saw their dreams crash and burn.
I can not see this ending in different ways. I would love to be wrong.
Dana Blankenhorn has been a finance and technology journalist since 1978. He is the author of the environmental thriller Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn. At the time of writing, he did not own any of the companies mentioned in this story.