Why Virgin Galactic Is Still Dreaming of Space Travel

Virgin Orbit’s recent launch failure isn’t a great look for SPCE stock

Although they’re two separate entities, Virgin Galactic (NYSE:SPCE) and Virgin Orbit will forever be linked to their shared brand name. As well, both organizations have businesses that overlap each other. Usually, these types of similarities, especially those associated with billionaire Richard Branson, have positive implications. This time around though, SPCE stock may end up getting the short end of the stick.

With space travel being the shared DNA in the two companies, a success in one augurs well for the other. However, the opposite is also true. A few days ago, Virgin Orbit attempted to demonstrate a new rocket system which is designed to send small payloads to orbit, according to the New York Times. However, on its initial launch attempt, management stated that an undisclosed problem forced the project to abort abruptly.

Where this is crucial for SPCE stock is that although Virgin Galactic is focused on space exploration with human passengers, it utilizes the same launching concept as Orbit. Both platforms are carried into the air by a larger plane and dropped, with the platforms’ separate rocket system carrying them into the next leg of their journey.

Essentially, we have two major concerns. First, Virgin Orbit’s launch failure doesn’t exactly provide much confidence for human space travel under a similar system. While it may not impact SPCE stock immediately, in the long run, passenger fears over safety may erode demand.

Another point is that this process of mid-air launches may not resonate. It’s been done before but to no mainstream adoption. And with this latest failure, the situation doesn’t look great for either Virgin Orbit or Galactic.

SPCE Stock Suffers from Unfortunate Timing

Granted, this is a long, experimental road. I’m sure that Branson himself realizes that by the time his space companies that he helped found actualize the “good stuff,” he will no longer be with us. So, if you’re a young investor and have nothing but time, Virgin Galactic might make sense.

However, I can’t help but notice that SPCE stock is a victim of poor timing. Based on technical trends, it’s quite possible that were it not for the novel coronavirus bringing a hard stop to the global economy, Virgin Galactic could be one of the best performers of 2020. Between the beginning of January through Feb. 19, shares more than tripled in market value.

Of course, SPCE would soon come crashing down as the U.S. and developed nations crumbled under the weight of the pandemic. But as coronavirus cases have started to decline, individual states and countries have started the slow process of reopening. Theoretically, we should see risk-on sentiment return, even for speculative companies like Virgin Galactic.

Call me pessimistic but I’m not entirely convinced. Back in September of last year, a UBS survey covering sentiment of ultra-wealthy households – we’re talking average family wealth of $1.2 billion – revealed that a majority anticipated a recession by 2020.

Most notably, the extremely affluent didn’t just believe a downturn was on the way; they acted on their instincts. This entailed adjusting their portfolio, particularly shifting emphasis toward bonds and real estate. Moreover, a significant number bumped up their cash reserves.

I mention these things to highlight that, contrary to popular wisdom, recessions do impact the wealthy, probably more so than the Regular Joe. That’s why they took action to protect their capital. Logically, I don’t think they’re in the mood for quarter-of-a-million-dollar space tickets.

A Poor Precedent Awaits Virgin Galactic

Finally, a major deterrent against SPCE stock is that niche travel services don’t work out well. In a March 2020 article about Virgin Galactic, I had this to say:

…we’ve seen this story before. For several years, Air France-KLM (OTCMKTS:AFLYY) and British Airways operated the Concorde, a supersonic commercial jet.

From a scientific perspective, the Concorde was an impressive achievement in flight. As well, casual bystanders appreciated its sleek, aerodynamic design elements. But from a business angle? As The Sun reported, low passenger numbers and rising maintenance costs killed the program.

Here’s something else to chew on – the Concorde worked. Up until its notorious crash in Paris on July 25, 2000, the supersonic jet had a perfect safety record.

Virgin Orbit’s recent failure suggests that not everything with the launching process is in tiptop shape. And if something goes wrong with a human space flight, the impact to SPCE stock could be disastrous. Given the many variables involved, I’m going to keep my portfolio terrestrial for the time being.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he did not hold a position in any of the aforementioned securities.