Billionaire Sir Richard Branson is serious about space travel.
Branson formed Virgin Galactic in 2004 with the intention of sending regular people — well, regular people that have an extra £200,000 (approximately US$250,000) lying around — into space. So far, more than 600 people from 60 countries have spent an average of about £100,000 each to reserve a spot on one of Branson’s spacecraft.
Demand for Space Flight is Soaring
According to The Guardian, those hoping “to take a 90-minute flight that will only for a brief few moments escape the Earth’s atmosphere include celebrities Justin Bieber and Leonardo DiCaprio.”
On Monday, Branson announced a partnership with Chamath Palihapitiya, CEO of Social Capital Hedosophia (SCH) Holdings Corp. (NYSE:IPOA), with the intent of making Virgin Galactic the first — and, thus far, only — publicly traded company dedicated to human spaceflight.
“Palihapitiya, will invest an additional $100 million in the transaction and will become chairman of the combined entity,” a Virgin press release noted.
“Great progress in our test flight program means that we are on track for our beautiful spaceship to begin commercial service. By embarking on this new chapter, at this advanced point in Virgin Galactic’s development, we can open space to more investors and in doing so, open space to thousands of new astronauts,” said Branson.
“We are at the dawn of a new space age, with huge potential to improve and sustain life on Earth. I am delighted that SCH has decided to become such an important part of our amazing journey. They share our dreams and together we will make them a reality.”
Palihapitiya was equally effusive, saying that Virgin Galactic was “light years ahead of the competition” and adding that the “risk-reward is really compelling.”
“We have 2,500 people on the waiting list who want to be customers. There are many more people who want to go to space than there is room to fly them,” Palihapitiya concluded.
Will High Demand Equal High Growth?
But is the optimism of billionaires a reason to invest in the eventual Virgin Galactic initial public offering? Simply put, no. However, the early funding is encouraging. Most are aware of how risky investing in technology IPOs can be, but underfunded IPOs are portfolio death.
Consider Intrexon Corporation (NASDAQ:XON). The company, which designs, builds and regulates DNA sequences, had less than 10% of its expenses covered by revenues when it made its public market debut on Aug. 8, 2013. XON closed at $24.73 that day; it finished Wednesday’s session at $7.75.
Contrast that with Alibaba Group Holding Limited (NYSE:BABA), which had $6.51 billion in revenue and $3.65 billion in expenses when it went public on Sept. 19, 2014. BABA was valued at $93.89 when the closing bell rang that day. Alibaba currently trades at $166.93 a share.
Ultimately, investors will have to wait until the second half of the year to get a closer look at the private company’s financials and see whether there is potential for the company to take off.
Bet On or Against Branson
In October of 2018, Branson said that he hoped to be on a Virgin Galactic flight into space “in months, not years” and felt passengers would be on board “not too long after that.”
That kind of confidence, though clearly misguided, is inspiring — as is the enthusiasm of potential passengers and the amount of money that has already been raised.
In other words, when Virgin Galactic does go public, it might be unwise to bet against Branson.