Tuesday, 4 August 2020

Buckle Up for Virgin Galactic

Without looking too closely Virgin Galactic (ticker SPCE) struck me as a theme park company. Albeit a pretty darn fun one. And premium too. A cool quarter million for 5 minutes of weightlessness. This perception was further supported by the recent appointment of the former head of Disney's parks as the company's CEO. Galactic has teased that they might one day extend their product to point-to-point supersonic commercial travel. But it has been careful not to do so in any of its SEC disclosures. This trend continued Monday as the company dropped three pieces of news:

On the left is the announcement of a proposed $460m equity raising for "general corporate purposes". In the middle is the announcement of financial results, with zero revenue and more than $120m burned in the six months of this year to date (about a third of its remaining cash on hand). On the right is the announcement of a non-binding agreement with Rolls Royce to explore engine development for high speed commercial aircraft.

Company insiders chose to emphasise the latter news. Galactic Chairman, and all round slick talker, Chamath Palihapitiya shared some sexy renders:

The first two pieces of news are the meat, and the third is the potato. Rolls Royce recently announced a development agreement with Boom Supersonic, a company strictly focused on developing a supersonic commercial aircraft. There is no obligation to Rolls Royce and need not be any incremental effort from them while they garner some PR value from the Virgin Galactic news. Virgin Galactic accrues some hype to support its capital raising efforts. A cynical ploy that will probably work. But if Galactic was serious about supersonic travel there might be some mention of it in their SEC filings. There remains none as of this writing. And if the company were serious about technology development it might not have appointed a career theme park manager as CEO. 

Incidentally Boom Supersonic has raised just $150m to date, which has supported six years of development to the launch of its supersonic prototype in the coming year. It's difficult to tell what is really going on under the covers of these companies, but on the surface it appears Boom is vastly more capital efficient and focused on delivering commercial value than Virgin Galactic is. But that has not stopped the public markets giving Galactic about 10 times the capital and 5 times the valuation that the private markets have given Boom.

- Vincent

[Disclosure: I am a private investor in Boom Supersonic, and may or may not go long Virgin Galactic as a short term momentum play on this news]