Unexpected Development: Virgin Galactic Requires Additional Finances (Although Not Surprisingly So)
Space exploration company Virgin Galactic (SPCE 1.77%) unveiled its third-quarter financials lately, and the news wasn't positive.
While the organization affirmed that the construction stage of its new Delta-class spacecraft is underway, it's transitioning to design work on its new "mothership," and it's projected to commence commercial flights in 2026 – all positive developments. Yet, Virgin Galactic's stock dropped for the week despite this.
The reason behind the decline was the financial results themselves.
Virgin Galactic is still in the red
Virgin Galactic's Unity spaceplane concluded its final tour of space travelers during the Galactic 07 mission back in June, and then retired shortly thereafter. The company hasn't carried out a single paying customer into space since, and won't be able to until it finishes building and testing its new Delta-class spacecraft and the motherships to transport them.
Unsurprisingly, the company generated almost no revenue during the quarter ($402,000). Granted, with no flights, Virgin's expenses dropped dramatically (down 29%). However, the company had to invest in progressing its new space travel lineup and generic expenses amounted to $82.1 million.
In the black, Virgin Galactic reported a loss of $72.7 million – $2.66 per share – despite an increase in shares, spreading the losses out among 49% more shares than the previous year.
Virgin Galactic also mentioned that its cash burn rate accelerated to $118 million in the quarter – not great news. On the upside, the company has $744 million in cash and liquid assets. Assuming a consistent burn rate, this would sustain the company for another six quarters – just enough time to cover the gap between now and 2026, when Delta-class spacecraft are expected to fly. On the flip side, though, management predicts that cash burn will continue to rise, forecasting it will burn between $115 million and $125 million this present fourth quarter.
If you can't sell rocket trips, sell shares
In a nutshell, even if everything goes well and Virgin Galactic's cash lasts until 2026, it'll be a tight situation with no room for mistakes. And, of course, there's the classic "space is tough" saying to consider. A multitude of difficulties could likely emerge for Virgin Galactic. Test flights may encounter issues, and a return to commercial space travel may be pushed back – perhaps until later in 2026, but also possibly into 2027 or later.
To manage these threats, Virgin Galactic plans to sell more shares.
Just after revealing its Q3 earnings, Virgin Galactic announced its intention to issue and sell another $300 million worth of shares "whenever appropriate." The company states that the funds will be used to construct an additional mothership and a third and fourth Delta spacecraft (indicating that management believes its current cash will be enough to construct its initial two Deltas and its first new mothership), as well as for general corporate purposes.
Unspoken was the fact that raising $300 million at Virgin's current $7 share price implies issuing roughly 42 million new shares. That equates to (lets check) a substantial 50% more shares than Virgin Galactic currently has in circulation. Consequently, this will dilute its existing shareholders by a significant 150%!
What's coming for Virgin Galactic?
So, should you buy or sell Virgin Galactic stock now?
By now, I believe I've made my stance on this matter clear. (Hint: I suggest selling.) I must acknowledge that the company's recent news doesn't change my perspective.
On the one hand, $300 million in fresh capital assures Virgin Galactic will remain solvent throughout 2026 – even if it falls short of its return-to-flight deadline, but still launches before 2027. On the other hand, even if Virgin Galactic manages to get back to business, investors will hold less of any future earnings the company might generate, due to the dilution.
Considering that even in an ideal scenario, I don't see Virgin Galactic ever becoming more than marginally profitable, I truly see no justification for owning this stock.
Despite raising an additional $300 million through the sale of shares, Virgin Galactic's losses continued, with a quarterly loss of $72.7 million. This equates to a significant dilution of 150% for existing shareholders, making it challenging to justify owning the stock, even in an ideal scenario where the company becomes marginally profitable. Investors need to consider the financial implications and the risks associated with space exploration before making investment decisions.
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