Virgin Galactic’s Latest Delay Is a Wake-Up Call
When Virgin Galactic (NYSE:SPCE) stock began trading in 2019, its management had laid out an aggressive strategy to start flying out people to space by 2020.
Then the pandemic hit, which had Virgin and countless other companies having to reassess their plans. Since then, the developments have been mostly underwhelming for the company, so investor patience is wearing thin with SPCE stock.
Virgin Galactic closed out its merger with Chamath Palihapitiya’s SPAC, Social Capital Hedosophia, in October 2019, kicking off the exciting space race. Since then, several firms have entered the fray, creating an existential threat in its lofty space tourism goals. Particularly, Blue Origin, founded by Amazon (NASDAQ:AMZN) founder Jeff Bezos, has been making some impressive strides which are likely to create major problems for Virgin.
SPCE stock has enjoyed a healthy run-up since its listing, growing over 66% in value. However, after peaking at $62.70 in February this year, the stock has lost a fair share of its value. This month, the stock has shed 22% of its value and is likely to struggle for the foreseeable future due to its uncertain outlook, competitive pressures, and repeated delays.
Yet Another Delay
Virgin Galactic’s management recently announced that it had to delay the Unity 23 flight to wrap up upgrades on the VSS Unity and EMS Eve mothership. The management believes that the enhancements will significantly improve vehicle performance and the frequency of flights.
Having said that, it is clear that the company won’t be flying before the middle of 2022. This postponement is yet another entry into the long list of delays the company has announced this year. There was a delay concerning EMI interference and supplier defects over the past few months. Moreover, the FAA had also investigated the Unity 22 after it flew outside an allotted area.
Delays are common for any business, but Virgin is making a habit of it now. Most analysts have been quick to dismiss them as part of the process so far, but the sheer number of delays is now testing the patience of the bulls.
Competition From Blue Origin
Virgin Galactic appears to be ahead of its competition in the fast-growing space industry. It was the first to carry out a fully crewed spaceflight and is the closest to monetizing its service. However, the competition from Blue Origin is looming and is likely to be a major problem in the long term.
Blue Origin has the technology to rival Virgin Galactic. Additionally, it is financed by the deep pockets of Bezos, who calls it his passion project. Moreover, it has some key differences which set it apart from Virgin. It offers a shorter flight at greater altitudes and fewer training days. The take-off methodology is also different with both businesses. This is likely to play into the long-term economics of both enterprises.
For Virgin Galactic, the issue is its business model, which lacks recurring revenues and potential for scalability. It is more of a one-time experience for most passengers, and the company will need to incur massive acquisition costs after completing every sale.
Bottom Line On SPCE Stock
SPCE stock continues to tumble after repeated delays in the start of Virgin Galactic’s commercial operations. The cumulative delay is now at roughly 2.5 years, considering it was supposed to start flying people aboard its spacecraft in 2020.
Analyst consensus price targets for the stock have been lowered due to the continual delays. Hence, it’s best to steer clear of SPCE stock for the time being.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
