Virgin Galactic stock rose after earnings but gains could be brief

Virgin Galactic (SPCE) stock price rose by 4% in the post-market session after the company published better-than-expected financial results. It rose to $5.49, paring back some of the losses made in the regular session. 

Despite the jump, SPCE is one of the top laggards in Wall Street as it dropped by almost 90% this year and by 92% in the past 12 months. In a sad turn of events, a company that was valued at over $14 billion in 2021 has lost its market cap to just $116 million and is fighting for its survival.

Virgin Galactic earnings

In a closely-watched statement on Wednesday, Virgin Galactic said that its business conditions were improving. 

Its revenue rose to $4 million, higher than the $2 million it made in the same quarter in 2023. For now, Virgin Galactic’s revenues are not all that important since the company is not fully in business.

On the positive side, SPCE reduced its operating expenses from $141 million to $106 million while its net loss narrowed to $94 million. Also, its cash outflow improved to $114 million.

Some of this performance is because the company has been reducing its expenses in the past few months. For example, it laid off 185 of its 840 full-time employees and the management has suggested that cost cuts will continue.

The company made several developments during the quarter. It completed the construction process of its final assembly plant in Arizona and continued making its Delta Class spaceships, which it expects will go online in 2026. The company also released a business model video, explaining how its operations work.

Key challenges remain

Despite the strong numbers, the company is facing numerous challenges, as we have written before. 

The first challenge is that it is still burning huge sums of money and will need to raise more in the next few years. It ended the last quarter with over $835 million in cash and short-term investment. 

While these are huge sums of money, the company is expected to burn between $115 million and $125 million in the second quarter alone. As such, if the trend continues, Virgin Galactic will likely need to raise more by 2026. 

Virgin Galactic has been diluting its shareholders for a while, a move that has seen its total outstanding shares rise to over 20.6 million. Most recently, it has been implementing its At the Market (ATM) offering worth $400 million, of which it has raised $394 million. 

Virgin Galactic believes that it does not need to raise more money since it expects that its first two spaceships will be able to generate over $100 million in adjusted EBITDA annually.

The management also cites its strong customer base of 700 pre-booked members. It believes that it has more room to grow considering that reports by Credit Suisse and Jefferies have estimated a target customer base of 300,000 and annual growth rate of 8%.

The challenge with these numbers, as we have seen in the Electric Vertical Take-Off and Landing (eVTOL) industries, is that they are based on assumptions because this is a new industry. 

In the past, some of the most ambitious targets in other industries like cannabis and 3D printing have not worked out well.

Virgin Galactic hopes that it will initially serve about 750 customers annually, meaning that it will make about $450 million in annual revenue since a seat costs $450 million. After that, it hopes to get to 1,650 customers annually and $1 billion in revenues. 

It also hopes that the initial EBITDA for the first year will be between $90 million and $115 million followed by $450 million and $500 million after expanding its fleet. Its adjusted EBITDA margins will initially be between 20% and 25%. 

The other issue is that, even if this industry thrives, Virgin Galactic will face substantial competition from the likes of Tesla and Blue Origin, which are funded by two of the richest men globally. This means that it could face some pricing pressures in the future. 

Virgin Galactic stock price forecast

In my previous articles, I have warned that Virgin Galactic stock has more downside primarily because of its balance sheet. These forecasts have been accurate as the stock has continued tumbling and moved to a record low. 

The SPCE stock price has remained below the 50-day and 200-day moving averages while the Relative Strength Index (RSI) has moved to the oversold level.

Therefore, the stock will likely continue falling in the coming days as sellers target the next target at $4. However, as I have also warned, Virgin Galactic is one of the top meme stocks and is highly shorted with a short interest of over 20%.

Therefore, the risk of shorting the stock is that it could go through a short squeeze that could push it significantly higher.