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What’s Next for Virgin Galactic?

The space tourism company has put tickets back on sale at a shockingly higher price.

August 13, 2021

Virgin Galactic (NYSE: SPCE) has slowly been moving toward becoming an actual revenue-producing company. The space tourism brand has completed test flights and even sent its founder, Richard Branson, on a successful trip

Now, the company has reopened tickets sales and has raised prices from $250,000 to $450,000 per seat. That’s a big change which should make a major difference in short-term revenue, but that’s not really the future of the company. Steve Symington joined Dan Kline on the August 9 edition of “7investing Now” to explain where the company is going in the short and long-term.

A full transcript follows the video.

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Dan Kline: So here’s what’s happened. Virgin Galactic, a company we have talked about a lot has reopened ticket sales with spaceflights at a starting price of $450,000 a seat. This comes after the company completed a test flight. Steve, this is $450,000. I know they say it’s like a four day Space Camp experience. But it’s an 18 minute suborbital flight, this is a lot of money. Yeah, I’ll let you jump in here.

Steve Symington: Yeah. So for perspective, they already have about 600 people who previously reserved their spots paying an average about $250,000. They closed the reservation several years ago, they have not reopen them until just last week, we saw shares kind of rally on the heels of that. And yes, it comes not just on a single test flight that included Richard Branson, most recently in July. But several other test flights before that. And they are, they received their FCC approval to, or FAA approval, to begin flying commercial passengers whenever they so choose, which we can get to that in a minute, will happen about Q3 next year. So that’s that’s about when they’re targeting it. And there’s a few things behind that. But yes, $450,000 a seat. I think we will be surprised at how many people will jump on that chance. So this isn’t something they’re targeting, just your everyday consumer. These are high net worth individuals who have the money to burn.

Dan Kline: Steve, just a quick aside here, the original price was $250,000. Does this create a resale market? Because if I had a $250,000 seat, it’s now worth $450,000? I get if I can afford to spend $250,000, an extra $150,000 or $200,000, if I could sell it for less value might not matter to me, but it is still a pretty big number.

Steve Symington: Yeah, I don’t know how that works exactly. I know there’s been reports of some kind of notable celebrity celebrities Ashton Kutcher, for one who sold their tickets back to Virgin Galactic years ago, because his wife said, hey, we’ve got a young family. She was nervous about it. They hadn’t moved quite as far along in their test program. So who knows how that plays. But, if maybe you could say you want to be one of the first 600 to go up? I don’t know, if we have a resale market there. But

Dan Kline: So you’re actually confident that there’s going to be significant demand at these prices?

Steve Symington:  Yeah. So I think, when people ask, what kind of demand are we gonna have? I think the the only accurate answer is stronger than you think. Right? And, previously they told investors actually, they’ve shifted some things around on the heels of reopening this, they changed several things. So they previously told investors that they were going to reopen ticket sales after the next test flight, which was supposed to be kind of any week now.

Right? And they decided after the Richard Branson flight because they had seen such massive consumer interest voiced on their website for these flights, to reopen them effective immediately and the next flight will be in late September. It’s a scientific research and astronaut training flight with the Italian Air Force that’s at about $600,000 a seat. So that’s another separate market for them.

But they reopen them earlier than expected due to the demand. And there’s several analysts who’ve already stepped out and kind of forecast pretty significant reservations. I think Morgan Stanley actually said they expect they should get a little over 1,100 new reservations out of this. And they also have a group of people, 8,000 people have paid $1,000 refundable deposits, to secure their places in line after the first 600. So those people get the first chance and then they’ll open it up to another waitlist afterwards. So I think that’ll be an interesting catalyst for the stock over the next couple of months is if they decide to step out and say, Look at all this demand, because if they do, fulfill Morgan Stanley’s forecast of securing an additional 1,100 reservations at $450,000 bucks a pop, that’s about $500 million in reserved seats that they’d be able to collect.

And they said, there is a slight premium even more, to reserve full flights, because they’ll have single seat options, they have a two seat option for couples and friends, and family. And then if you want to book a whole flight, you can do that that will cost you a little bit more. But I think I think we’ll be surprised. Most people will be surprised at the demand that we see.

Dan Kline: Steve, I think it’s important to point out that you and I are both investors here, I think you believe in this a little more than I do. But I see the long range potential, especially on the travel end. But let’s look at the numbers a little bit because I’m not a giant numbers guy, as you know, but as an investor it does, at some point, come down to two numbers. What does it cost to operate a flight? So it’s about eight seats on a flight? Is that accurate?

Steve Symington:  No. I mean, the last one they did was four I think once they really start ramping Commercial Service, it’ll probably closer to six people per flight. That doesn’t include the pilots. So yes, six paying, two pilots. But Virgin Galactic doesn’t break it down in granular detail. Like this is exactly how much it costs for us to fly right now, because they’re looking at scale.

So when they went public, just a couple of years ago, they suggested that once they’re at scale, or at least starting to and this is assuming maybe flying 1,500 passengers a year, which won’t happen for a few years yet. They were suggesting before that they’d be able to generate EBITDA margins of about 46%. So pretty healthy. But that model was also assuming ticket sales around $350,000 a piece. And that would have equated to about $600 million in revenue each year. So 46% EBITDA margins pretty healthy already there. But more recently, I think it was last November, management had suggested that they want to be able to fly out from multiple spaceports with a high single to low double digit numbers of spacecraft at each spaceport, and they expect each one to eventually generate.

If we can assume economies of scale and operating leverage continue, I think we see even healthier margins from this kind of near term aspect of their business.

Dan Kline: So you’re looking at a very profitable but limited company. So they could open up a few more spaceports. But Steve, how long is this part of the business viable at some point you run out of idle multimillionaires, because the amount of money you have to have to spend $450,000 on an 18 minute spaceflight, you have to be worth, I’m gonna say north of $20 million, or you’re really making a foolish purchase, even then it’s kind of a foolish purchase, how long can this part of the business keep growing?

Steve Symington: I think again, the answer is longer than you think. I think this goes for several years. I think this can carry the company for a decade or more. But then they’ll start, they’ll start branching out into other areas as well. But, I honestly think this is a part of the business that can provide much needed cash flow, profitability to help them scale into other revenue streams going forward.

But yeah, I think, several years is the answer. And, and I think we’re also in a lot of people underestimate the number of people who have the money to do this. And to do it on a repeat basis. That was something that that Virgin Galactic talked about in their conference call last week. The Q2 earnings conference call . They’re building this up in such a way that it’s not only sort of this life changing, transformative event for people, but yes, it’ll be a multi-day event. The flight itself takes about an hour and a half. The actual spaceflight part is only a few minutes in microgravity, but suborbital again, you go up, you come right back down.

But, we also look at what these people are spending on other things like private jets from New York to London or a week long island rental for a vacation or something, and then eventually they’ll bring the cost down, because it’s not gonna be $450,000 a seat forever. They they’ve, had slides where they say, okay, we’ve got about 50,000 people or 100,000 people who have the net worth to be able to afford this without even blinking. Lower it to $250,000 a ticket the the total addressable market expands pretty significantly lower to $50,000 a ticket, and you’ve got a couple million people around the world who could pay that, and a pretty significant subset who who will pay that? And I think, again, the demand is going to be surprising.

Dan Kline: A family of four at the newly announced Disney World Star Wars hotel, which is a two day all inclusive, immersive experience is under $10,000. That number seems astronomical. But I’m pretty sure I’d rather do that 45 times, than do this once. Like I know I’m being a little bit silly, but it is a lot of money. We’re going to talk about areas where I think the real future for this company is but I want to take the comments from ABC Capital, because we are starting to see some comments come in. And [unkown name], we will take your comment later in the show.

Steve Symington: That’s Todd there. Hey, Todd

Dan Kline: Oh, it’s actually our old friend Todd Campbell, forgot about that. “Forget sales taking folks for golf and steak. Let’s go for a space ride”. I actually think that’s that’s an interesting thing. So that’s a world my brother’s in, where back when he worked at AEG, he took a private jet full of big ticket customers from LA to New York for the Stanley Cup final when the Los Angeles Kings were playing the Rangers, I actually think there is some market there. So that is kind of a smart point by our old friend there. But Steve, when will the company, and that’s Virgin Galactic, we are talking Virgin Galactic. I’m Dan Kline. He’s Steve Symington, and you’re watching 7investing Now. When will the company move into other revenue areas and what do those areas look like?

Steve Symington: I think it’s gonna take several years before we get there, right, and several years of scaling, building out new spacecraft, and they’re only just finishing up the design phases of their Delta generation spacecraft, which will reduce turnaround to a weekly, or an every couple days flight is is what they’re looking at. But once we do that, and again, several years from now, I think we start to talk about hypersonic long haul travel. So Point to Point travel that can be done not only things like cargo, but flying people, extraordinary distances, in just a couple of hours.

And we already see, they’ve already branched out into scientific experiment and professional astronaut training revenue. That’s something I think, as a supplementary source of revenue, that’s gonna be again there next flight in late September with the Italian Air Force, that’s $600,000 a seat right now. But on their vision page, if you go to [https://www.virgingalactic.com/vision]. They explicitly mention bringing down costs to expand their, their total addressable market, and then over the longer term, even being able to transport customers to Earth-orbiting hotels or scientific research stations. So they have expressed an interest in long term orbital travel, but we are nowhere near that yet. But it’s really interesting, because you look and you say, the sky’s the limit, then sounds cheesy, but it really no longer is, and they have massive aspirations. And, and I think we’re gonna see a pretty significant sized business in the near term before they even get there.

Dan Kline: That’s actually what I’m most excited about. Because I look, do I think the market for 18 minute spaceflights, no matter how much space camp you go to beforehand? How much astronaut ice cream they give you for free? That’s limited. It’s a vanity plate. No one’s doing this twice, like that is that is absolute nonsense to think you’re gonna. I don’t care how rich you are.

Steve Symington: I disagree. I do, though. I think we will. And and actually, we can talk about, competition in that sense, but I think people will do it, not only more than once on Virgin Galactic, once they reach scale, but also doing it on multiple flight experiences. Right.

Dan Kline: That I agree with. And let’s use the comment from [unknown name] I hope I’m pronouncing that correctly, Sam, if you want to bring that up. “What about other players entering the space travel business over the next few years”? Steve, I specifically brought up Blue Origin and SpaceX, it’s important to know that while Blue Origin is going to be in this space, that’s the Jeff Bezos company, their goal is actually colonizing the galaxy. They’re more of an altruistic company, whereas SpaceX is delivering internet and they are more of an eventual business competitor here. So why don’t you talk a little bit about competition.

Steve Symington: So, I think we’ll talk, like that talks about like, Starlink right, where they have their their fleets of satellites and stuff. But SpaceX, is already ushering people to the International Space Station. I think they have like orbital things that you can go on. But I mean, again, that’s like a $55 million ticket is basically what you’re paying for something like that. Very rare, extremely exclusive in that sense. Blue Origin is kind of similar in that that their aspirations are more or orbital right now they do have that rocket that Bezos and four other people went up on including Wally funk, who incidentally said she also has a ticket for Virgin Galactic flight already. She’s one of those first 600 people, she was the oldest person fly to space. Became the oldest person to fly to space with Bezos.

But, yeah, it’s, I think, I think one important point is that we shouldn’t think of these companies as at least in these stages, competitors, there’s too much lip service being paid to, who makes it first. And, and, and who’s a competitor, where I don’t think they’re stealing each other’s business. I think if something good happens to one of them, it will reflect well on all of them. And I think it’s sheer validation at this stage of the broader industry opportunity. So I don’t think of them as is only this company wins, and there will be more competitors in the suborbital space, and definitely the orbital space going forward. But I do think, to that, and there is some first mover advantage, because you have companies that are they’re working to get FAA approval to do these things, especially if your company like Virgin Galactic, not so much if your rocket ship that’s automated, like Blue Origin, they didn’t require that. But yeah, I think if something bad happens, conversely, it also reflects badly on the broader industry, because it could spur hesitation, among the public who, who was really the target consumer over the long term.

Dan Kline: Steve, let me ask a quick follow up. And then we’re going to get to some of your questions and comments. How many successful flights do they need to be till we can deal with an unsuccessful one? Because in the airline industry, as awful as it is, we have plane crashes, they are very, very rare. And I don’t want to say nobody worries about it, because obviously, lots of people are nervous about flying. But if we’ve had 1000 spaceflights, is it 100? What’s the number one crash does not set the industry back years?

Steve Symington: Thousands? I think, it’s got to be something where these flights are so commonplace that it’s just a bizarre situation, that caused a flight to fail. 1000’s upon 1000’s, I think before we reach that, and I’m reminded of a meeting that I had with the co-founder of GM Cruise, several years ago, and he was talking about kind of their impending plans to launch a robo taxi fleet at GM Cruise, which I can’t remember that, they’ve since changed their name, but the he he told me that, it’s not enough that we’re twice or three times or even four times as safe. As a human driver, we need to be 200 times safer than a human driver. And that’s just, a situation where, you might have an autonomous vehicle cause an accident, and, very rarely kill somebody.

But obviously, a crash or catastrophic event for something in the space tourism industry would be much harder to bounce back from. But even then, you saw that Virgin Galactic back in 2014, had a flight that actually crashed and killed one of their pilots, the other one miraculously survived. And that was human error that caused that flight, unfortunately, and they fixed those issues. But even then, you look at the 600 people or so who hung on to their reservations through that process. So kind of extraordinary in that sense. But yeah, it’s it’s going to be much more sensitive to adverse events.

Dan Kline: We’re going to start with the comments. And Steve, you can read this one from our very own JT Boulevard. That is of course, our marketing person JT Street under a luchador mask, Steve, take it away.

Steve Symington: He says “I agree with you Dan about SPCE long term, that’s Virgin Galactic ticker, Virgin Atlantic double down on cargo during the pandemic and I can see the growth of suborbital cargo flights as a long term goal. Imagine flying a lot of cargo from New Mexico to China in a few hours”. Definitely a possibility, especially once they scale these planes. And that’s something that management has said, at this point, we’ve realized we need a lot of planes and multiple spaceports and again, those are each going to be kind of catalysts for the company.

They say, here’s a new plane. Here’s a new style of plane that is much more modular and reduces turnaround times. But new spaceport news and additional planes is the goal. And once they kind of get through, they’re growing massive and are in growing backlog of people who’ve made reservations and most certainly, cargo trips could be really interesting in larger planes that are built to fly cargo and not necessarily people.

Dan Kline: Sam Bailey, we will take the comment from Mike Fee. Next, Mike, thank you for being a regular of the program. People that put deposits down with Virgin Galactic 10 plus years ago, the return on that money could have been doubled by now if they invested in an index fund. Yeah, and it would be even higher if they invested it with, with 7investing picks. That being said, I am pretty sure the people we’re talking about $1,000 would be the equivalent if Steve and I were out and he forgot his wallet. And he said, Hey, can you spot me? $100? Like, it’s just not, it’s not a relevant amount of money for these people. But Steve, still a funny way to think about money here.

Steve Symington: It is. And, it’s also something that kind of sheds light on. On the new price,  $450,000 might seem high, but, adjust that for inflation and the possible returns, they could have earned on that money. It’s really not, all that out of the ordinary. And, again, looking at yet you sort of unconfirmed reports talking about Blue Origin’s flight, they said there’s as well north of $500,000 or $500,000 per seat and Blue Origin said they’ve already collected over $100 million in reservations. So, again, a lot of people out there willing to pay this in these early stages, and there will only be more as the prices come down and they scale.

Dan Kline: Yeah, let’s be very clear. The audience here isn’t like me jumping on Priceline trying to save $30 on a hotel room, or being excited to get comped in Vegas. This is a well heeled audience that is spending dramatic amounts of money on travel and leisure and vacation and, and things.  These are people who are buying cars that are that are six figure cars. So again, it’s not a world most of us travel in, it’s frankly a world that many of us probably wouldn’t spend this money even if we had it. But there’s clearly an audience for this.

I want to close out with the last comment from Daniel Delgado. Daniel will try to take your other comment towards the end of the programming if we have some time. “Isn’t the future to accomplish low orbit flights from Houston to London”? I think this is the most exciting piece of the company, this ability to get super fast global travel, I would happily fly from New York or Houston to London in what like an hour like that sounds great.

Steve Symington: Yeah, and that’s pretty quick. And a lot of these people are already chartering private jets. And that was part of what Virgin Galactic included in their initial investor presentations prior to their SPAC merger going public. And that, they highlighted the fact that people were already paying $150,000 for a private jet from New York to London. And, in that sense, $450,000 ticket where you actually get to experience microgravity is it would be kind of incredible and and you extend that to be able to go from spaceports to spaceport, could be really, really interesting. And I think it’s going to be a lot of fun to watch this story unfold.

Dan Kline: It also opens up the possibility of American sports franchises in London, which is something we’ve talked about a lot with the NFL. But the logistics of it has always been the problem. If in theory, you can have a quick flight from London to some New York base like New York, that is actually a game changer in terms of and obviously you have the facilities. This type of thing could make the world smaller. And when I say make the world smaller, I mean that in a really good way. Do I think that means, Steve and I are going to meet for lunch in Paris. No, it’s going to be more expensive than that. But is my brother who is a big time sports executive going to fly to New York for a business meeting much more readily, because it’s even at the cost. It’s worth it with the dollars involved.

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