British billionaire Sir Richard Branson’s airline empire is on the verge of collapse as air traffic plummets amid the coronavirus pandemic. But his space tourism side hustle, Virgin Galactic, may offer a ray of hope.
On Tuesday, Virgin Galactic posted a net loss of $60 million against a revenue of $238,000 in the first quarter of 2020. Wall Street wasn’t expecting much more as the company was still in the spending phase in the first three months of 2020 in preparation for its first commercial flight, expected sometime later this year with its 69-year-old founder, Branson, on board.
The company’s stock jumped five percent Wednesday morning on Tuesday’s earnings.
Virgin Galactic’s main offering is a 90-minute ride to and from space—the edge of Earth’s atmosphere, to be exact—in its suborbital vehicle, SpaceShipTwo. The ride starts $250,000 per seat, which industry analysts estimate would most likely appeal to people with a net worth over $10 million.
By the end of 2019, Virgin Galactic said it had received more than 600 reservations, representing potential sales of $150 million. On Tuesday, CEO George Whitesides said an additional 400 people put down $1,000 refundable deposits in the first quarter. “This response to our [initiative] demonstrates the appetite for our product,” he told investors on the earnings call.
Another highlight from Tuesday’s report was the $420 million cash Virgin Galactic had on hand at the end of March, which seems healthy enough to cover its monthly burn rate of $16 million for a while.
In a bullish research note last week, Morgan Stanley rated Virgin Galactic’s stock as an attractive investment “in part due to its position as the only pure-play publicly traded space” company, and “a growth outlook we see as largely insulated from COVID-19 factors.”
Yet, analysts have cautioned that the pandemic’s impact to luxury spending as a whole might eventually bite into future sales of Virgin Galactic’s vacation packages.
“Despite the healthy backlog [reservations], deposits are largely refundable and aspiring ‘astronauts’ may reconsider discretionary spending in light of a weaker economic backdrop,” Morgan Stanley’s star transportation analyst Adam Jonas wrote in a note to investors in late March. “The market for space tourism is driven by demand for luxury experiences, which could be hampered in a post-COVID-19 world.”
Virgin Galactic is by far the only publicly traded company in the so-called “new space” market. Similar space tourism packages offered by competitors, notably Jeff Bezos’ Blue Origin and Elon Musk’s SpaceX, are in more nascent stages, and financial positions are less clear due to these companies’ private status.