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IPO Watch

Will Virgin Galactic’s share price take off after IPO?

Space tourism has officially landed in Wall Street, following Sir Richard Branson’s space tourism venture Virgin Galactic [SPCE] IPO’ing on the NYSE on 28 October.

The company’s share price, which opened at $12.34, had appeared to be on an upward trajectory for a good part of the morning, but ultimately closed down 4.7% at $11.75, giving it a valuation of $2.3bn. At close the following day it closed down again at $10.99.

 

 

Virgin Galactic’s IPO marks the first space tourism company to launch on public markets and will likely become a benchmark to gauge investor’s interest in the commercial space travel market.

“A lot of hard work has been done — it’s great, it’s exciting. It wasn’t easy for [retail investors] to invest up until today. From today it will be that much easier,” Branson, who has more than a 40% stake in the business, said while dressed in a spacesuit at the NYSE.

“A lot of hard work has been done — it’s great, it’s exciting. It wasn’t easy for [retail investors] to invest up until today. From today it will be that much easier” - Richard Branson

 

Rocketing revenues?

The venture, the core business of which is suborbital space travel – completing only a partial orbit of the earth – has $80m in prospective sales from 600 people who have signed up for its space flights since 2005, among them are celebrities Justin Bieber and Leonardo DiCaprio.

However, as it stands Virgin Galactic doesn’t yet have a paying customer. Last year the company recorded a net loss of $138m, despite successfully reaching the edge of space in a test flight in December last year.  

While the company aims to conduct 115 flights to generate $210m in revenue and to achieve profitability by 2021, its current valuation is seven times expected EBITDA.

That’s a sky-high share price for a company that is operating at a loss. Under its roadmap to profitability, Galactic is forecasting revenues of $590m and earnings of $270m by 2023, during which time it expects to have flown 3,242 passengers.

Meanwhile, potential roadblocks include whether the Federal Aviation Administration will approve its final authorisation and what exactly demand will look like for space travel.

$590million

Forecasted revenue of Virgin Galactic by 2023

 

Branson wins the billionaires space race

Unlike traditional IPO processes, the listing of Virgin Galactic’s stock was made possible through a merger with Social Capital Hedosophia Holdings, which is a special purpose acquisition company known as a “blank cheque”.

The blank cheque raised $700m for the debut and was launched by former Facebook [FB] executive Chamath Palihaptiya, who also separately invested $100m into the company.

Boeing [BOE] has also signed up to buy $20m shares through its HorizonX Ventures investment arm and Under Armour [UA] is set to develop space wear for passengers.

With the commercial space sector projected to be worth $2.7tn by 2045, according to research conducted by Bank of America Merrill Lynch, Virgin Galactic’s listing could be just the start.

$2.7trillion

Projected valuation of the commercial space sector by 2045

Branson is not the only billionaire currently fuelling the commercial space race. Elon Musk’s SpaceX venture to colonise Mars and Jeff Bezos’ Blue Origin, which plans to launch its first manned space flight by the end of this year, have both made significant strides.

However, following Branson’s announcement, it’s clear that Virgin Galactic has edged ahead, – Amazon stock [AMZN] closed down 0.8% and Tesla’s [TSLA] down 3.5% at close 29 October.

“We think we have quite a big lead when it comes to putting people into space,” Branson said. “There is room for all three of us. I don’t think there is room, interestingly, for any more companies… It will be tough for anybody else coming into the marketplace.”

“There is room for all three of us. I don’t think there is room, interestingly, for any more companies… It will be tough for anybody else coming into the marketplace” - Richard Branson

 

Branson has even hinted at the possibility of a lunar hotel, according to City AM, suggesting a possible tourist industry that would create a completely new market.

He’s also looking to launch more spaceports across the globe in countries such as Abu Dhabi, Australia and the UK. Virgin Galactic currently has testing facilities in California’s Mojave Desert and New Mexico.

While Virgin Galactic’s premier vehicle, a spaceplane with capacity for five passengers called VSS Unity, has only been to space twice, it plans to commence commercial operations by sometime mid next year, when Branson himself will go to space for the first time.  

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