Virgin Galactic’s proposed supersonic jet.  Image Source: Fox Business

The History of Virgin Galactic

• Founded in 2004 by British billionaire Sir Richard Branson.  Branson has extensive experience in the business world, having founded the Virgin Group, a conglomerate of companies of various types (retail, communications, an airline, hot air balloons, banking, etc.)
• Shortly after in 2005, Branson created another company, called The Spaceship Company, to actually manufacture the carrier plane and spaceship.  This company owned 70% of the company and Scaled Composites owned 30%.  Scaled Composites brought technical expertise to building the planes, and became a fully owned subsidiary of Northrop Grumman in 2007.
• Also in 2007, there was an explosion during a rocket motor test, killing three Scaled Composites employees.
• There was another fatal test crash in 2014 when SpaceShipTwo exploded over the Mojave Desert.
• Upon investigation by the National Transportation Safety Board (NTSB), the cause of the crash was cited as a combination of human error and inadequate safety standards.
• The first successful suborbital spaceflight was completed in December 2018

Business Overview

• Their mission is “to open space to change the world for good”.  
• Virgin Galactic launches spacecraft in low Earth orbit for private individuals as well as scientific researchers.
• They use a plane, called VMS Eve, to carry the ship, VVS Unity (named by Stephen Hawking, by the way), up into orbit to a certain point, and then release it.
• The ship so far has been demonstrated to reach speeds up to Mach 0.85, which if you’re not science inclined is around 650 mph – approaching the speed of sound.
• FAA Approval is key for this business – no approval, no flight.  VG was granted a Launch License, so they can officially put spacecraft into the air.  In order to fly paying customers though, there’s a 29 step checklist that must be fulfilled before the FAA grants those privileges.
• This is all great, but what is the demand of this business?  Where is the money coming from?  Right now it is coming from high net worth individuals who want a ticket to go into space.
• There are about 2 million HNWIs worldwide, and that number is expected to grow by around 6% annually through 2023 (Credit Suisse report).
• In the future, the company plans to operate a high speed Mach 3 vehicle for rapid air travel.  To give you an idea of how fast that is…that’s 2,283 mph!  Currently the fastest commercial plane is the Boeing 747-8 Intercontinental, which has a max speed of 659 mph.  Also for reference, a typical Boeing 737 plane travels at speeds of around 580 mph.
• According to the U.S. Chamber of Commerce, the space industry is expected to grow at about 6% per year

Financials

Valuation and Closing Thoughts

• Virgin Galactic is doing some pretty cool things regarding human spaceflight and space tourism.  
• This is a very capital intensive industry – for now.  It will be interesting to see how the economics shape up once all of the infrastructure and development costs are largely complete and the company can begin being profitable.
• I think a business like this is a double edged sword.  One on hand it has a huge competitive/first mover advantage.  No one else is doing this at a big level right now except for Blue Origin and SpaceX.
• On the other hand this is a business that is requiring massive amounts of capital just to prove a concept.  It makes sense that in this day and age, starting a space company is a billionaire’s game (Elon Musk, Jeff Bezos).
• Economically speaking, I see no reason to invest in a company like this right now.  The stock is trading at around $18 per share and I think that is supported based purely on speculation.  The company has passed some significant engineering and regulatory hurdles to get where it’s at, and it has a lot of paying customers ready to buy, but I just don’t know how to value a business like this.

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