Virgin Galactic (SPCE) has suffered some setbacks of late, and its stock is languishing in consequence — down roughly 50% from June’s peak.
In the latest blows to the company’s reputation, on September 2, the FAA launched an investigation into the July 11 flight that carried Sir Richard Branson to the edge of space — a flight that “veered out of its designated airspace for 1 minute and 41 seconds,” as Jefferies analyst Greg Konrad points out.
Then, on September 10, Virgin had to delay a planned fall launch of an Italian Air Force research mission due to a “potential manufacturing defect” on one of its spaceplanes.
Nevertheless, Konrad reiterated his “buy” rating and $33 price target on Virgin Galactic stock. (To watch Konrad’s track record, click here)
Konrad explains that while these setbacks will probably delay the Italian mission (“Unity 23”), and also push back a subsequent test flight (“Unity 24”), and then the company’s first paid commercial space tourism flight (“Unity 25”) as well — these are all short term issues. In the long term, Konrad argues that Virgin Galactic’s “forecasted revenue trajectory” remains intact.
So what does that “trajectory” look like? Here’s a quick chart showing Konrad’s expectations:
|Year||No. of paid passengers flown (estimated)||Cost per seat||Total revenue|
|2024||720 (~ 2 per day)||$350,000 (with some costing $250,000 and others $450,000||$252 million|
|2025||960 (~ 2.5 per day)||$450,000||$432 million|
|2026||1,440 (~ 4 per day)||$500,000||$720 million|
|2027||1,920 (~ 5 per day)||$500,000||$960 million|
|2028||2,400 (~ 6.5 per day)||$500,000||$1.2 billion|
|2029||2,880 (~ 8 per day)||$500,000||$1.44 billion|
|2030||3,360 (~ 9 per day)||$500,000||$1.68 billion|
Are these estimates realistic? We mean, aside from the fact that, with commercial operations now unlikely to begin before late 2022, Konrad’s chart was probably out of date even as he was assembling it — that huge caveat aside, can Virgin Galactic really grow this market as fast as the analyst predicts?
Consider: Konrad calculates there are nearly 80,000 persons on Earth today with a net worth of $50 million or greater — persons for whom dropping $250,000 or $450,000 or even $500,000 on a space ticket wouldn’t require even a second thought. If Konrad’s estimates are correct, then carrying 13,962 persons to space over the next 10 years would still leave this market 80% untapped.
And that’s before Virgin even begins marketing its service to folks with net worths of $10 million to $50 million (836,000 souls), $5 million to $10 million (1.7 million potential customers), or merely $1 million to $5 million — 18.2 million folks for whom a trip to space might be a once in a lifetime opportunity.
We won’t quibble, therefore, over whether “space tourism” is a potentially huge market whose potential hasn’t even begun to be tapped. We will, however, quibble over the valuation.
Consider now: At $6.3 billion in market capitalization today, Virgin Galactic currently sells for about 3.7 times the hypothetical revenues Konrad ascribes to it 10 years in the future. To put that valuation in perspective, Boeing stock currently sells for just 2 times the revenues that Boeing has actually collected over the past year — half the P/S ratio being suggested for Virgin Galactic, and Boeing’s valuation is based on actual results.
Now consider further that, based on Konrad’s price target of $33, Konrad is suggesting that Virgin Galactic stock should actually sell for 35% more than it already costs today.
Not everyone out on Wall Street is quite as excited regarding Virgin Galactic as Jefferies, considering TipRanks analytics showcase SPCE as a Hold. This is based on 11 reviews, including 4 Buys, 5 Holds, and 2 Sells. SPCE shares are selling for $26.42, and the average price target of $31.30 implies ~18% upside from that level. (See SPCE stock analysis on TipRanks)
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.