The hotshot commercial space tourism and research company, Virgin Galactic Holdings (Virgin Galactic), has officially been reduced to a penny stock in danger of being delisted. Virgin Galactic shares have fallen 51.15% YTD and a monumental 95% since founder, Richard Branson, first flew to space in July of 2021.
The problem is that Virgin Galactic has significant cash burn and no viable way of raising the kind of revenue needed to support its business at this time. The only thing keeping the company afloat thus far is its cash reserves from prior issuance of shares (share dilution), and they will likely need to issue even more shares within the next 12 months. Virgin Galactic currently has approx. 367.14 million shares outstanding, 34% more than the 274.48 million shares just one year ago. One might expect this figure to grow into the billions within the next 5 years if the company has any hope of surviving.
It’s Hard To Sell $450k Tickets
Ticket prices are another issue for Virgin Galactic, at $450k per ticket there just isn’t enough customers to support the business. For 2023, Wall Street predicts about $12 million in revenue for the company which works out to be just over 26 customers who paid $450k per ticket ($12 million / 450k). How many times are billionaires and other celebrities going to pay $450k to take a 90 minute space flight to experience 4 minutes of weightlessness? Because that’s what this whole business depends on as of right now. And for how long are big banks going to keep subsidizing this venture via underwriting shares in this type of economy?
It must also be hard for Virgin Galactic to attract customers after the Titan submersible disaster that claimed 5 souls, 4 of which paid $250k for the adventure. Extreme tourism has its risks whether it be at the bottom of the ocean or the edge of space, there is an elevated level of risk the further one travels away from the norm. Market participants must be expecting that the top 1% will be curbing their extreme tourism plans for the foreseeable future which would reflect Virgin Galactic’s current share price.
Reverse Split Likely On The Horizon
The fact of the matter is that Virgin Galactic is a long term position on the future of space tourism. Ticket prices need to come down significantly to something around the price of a ZeroG expedition which is around $9k USD, and assurances need to be made for safety which may include insurance. In the short term, one might expect the company to suffer under share dilution, lack of customers, high interest rates, and even environmental concerns to name a few; and share prices have been in free fall likely because of these factors.
It’s important to note that any extended period below $1/share would be grounds for delisting on the NYSE, shares are currently at $1.70. As a result, the company could be getting ready to undergo a 1-for-10 reverse split, similar to the split that AMC did just last month. This of course would pave the way for further dilution (issuance of shares) which is also what AMC has been planning. All in all, market participants should know that Virgin Galactic is a 5-10 year position if all goes well with the company, it will be a very rocky flight with excessive G forces on the way to prospective profits.
