Michael Chen

November 7, 2024 - 19:19 pm

Virgin Galactic Shares Plunge Sharply Amid Revenue Decline and $300 Million Share Issuance

Virgin Galactic shares dropped nearly 12% following a lower-than-expected revenue report and a $300 million share issuance announcement aimed at funding a new space tourism vehicle. Learn about the company’s plans and investor concerns.

Virgin Galactic Holdings Inc., the prominent space tourism company founded by Richard Branson, witnessed a steep decline in its stock price following an announcement of disappointing third-quarter results. Additionally, a newly revealed $300 million share issuance to fund the development of its next-generation space tourism fleet has raised further investor concerns. The funds from this issuance are set to finance a range of projects, including the construction of a new “mothership” aircraft and the Delta Class spaceship, which the company believes will propel its position in the space tourism market.

Revenue Decline and Market Reaction for Virgin Galactic

The company reported third-quarter revenue of $0.4 million, falling short of analysts’ expectations, which had forecast $0.53 million. This revenue represents a sharp 77% drop compared to the $1.7 million it recorded during the same period last year. Following this earnings miss, the stock took a hit, with shares falling nearly 12% to $6.28. The news further raised concerns about the company’s financial health and its ability to sustain growth.

Cash Burn Rate and Development Strategy

Alongside the lower-than-expected revenue, the company is facing a significant cash burn, spending approximately $120 million per quarter. However, it projects this burn rate will decrease below $100 million by the fourth quarter of 2025. The funds from the new share issuance will support the development of the Delta Class spaceship, anticipated to be the future of the company's commercial space operations. This advanced spacecraft is designed for a faster turnaround between missions, improving the company’s ability to handle higher customer demand.

Expanding the Fleet and Funding Virgin Galactic's Future

To enhance its fleet, the space tourism company has introduced an at-the-market equity program, planning to sell up to $300 million in shares. This financing initiative aims to support the production of additional space tourism vehicles and infrastructure. In particular, the development of the Delta Class, along with a new “mothership” to transport the spacecraft to its midair launch point, is expected to bolster operational efficiency. Chief Financial Officer Doug Ahrens reported that the company currently holds $172.4 million in cash and cash equivalents, a 25% decrease from the previous year, indicating an urgent need for this capital injection.

Future Space Tourism Services and Ticket Sales

The company’s last manned spaceflight took place in June, and operations have since paused as it prepares for the launch of its next-generation Delta Class vehicle. The company projects that ticket sales for these flights will resume about a year before the Delta Class spaceship begins service in 2026. The Delta vehicle is designed to hold six passengers, an upgrade over the prior models, and tickets are expected to be priced at $600,000 per seat. Estimates suggest that, once in service, the Delta will clear its backlog of approximately 700 ticketed passengers within a year.

Investor Concerns About Financial Position and Profitability

Despite impressive technological advancements, the financial challenges are a significant consideration for potential investors. The increased share issuance, while essential for growth, dilutes existing shareholders and raises questions about the path to profitability. Investors are closely monitoring the company’s ability to manage its expenses and revenue to reach a sustainable position, especially in a highly competitive and costly industry like space tourism.

The potential to secure a strong foothold in commercial space travel relies on its capacity to execute these plans effectively. For now, investors are left weighing the potential rewards against the current financial strain and hoping that the company’s commitment to innovation will yield long-term gains.