The Virgin Galactic IPO will be a financial pie in the sky!

“One small step for man. One giant leap for mankind”. I wished he had said “humankind” but Neil Armstrong’s words still thrill me as I watch the grainy images of his moonwalk (RIP Jacko!) even now. I had a boyhood dream of working in NASA’s Manned Spacecraft Center and even applied for a job there aged 12 – they politely advised me to complete high school/uni and sent me some fabulous photographs of astronauts training in Cape Canaveral, Florida. Space once obsessed me – Star Trek, Star Wars, Issac Asimov novels, the mathematical elegance of astrophysics. This was my first great instinctive-intellectual love, long before financial markets, world history, software, art and literature. So I was thrilled to learn that Sir Richard Branson, the only true legend in global aviation since Freddy Laker, plans an IPO of his space tourism venture Virgin Galactic by year end 2019.

My readers will be right to point out that I dissed Uber because it hemorrhaged cash but am going gaga over the Virgin Galactic deal. True, but then all is fair in love, war and IPO punting! Virgin Galactic investors, who include Abu Dhabi’s Mubadala have waited ten years for this milestone moment in human space flight. The reverse merger with shell company Social Capital Hedosophia means Branson can finally float Virgin Galactic in a Wall Street IPO.

Space tourism is only a potential $3 billion market but space linked long haul aviation is a potential $20 billion money gusher. Branson has built his Spaceport America in New Mexico and calculated that an eleven-hour Los Angeles-Tokyo flight can be slashed to two hours on one of his fleet of spaceships. Sir Richard, arguably the most charismatic promoter ever to emerge from Britain, estimates Virgin Galactic will own 30 to 40 spaceships that will whizz thousands of passengers across space in the next decade.

Elon Musk’s SpaceX and Jeff Bezo’s Blue Origin are both rivals to Virgin Galactic but way behind it in the human/commercial space flight launch timetable. For now, Virgin Galactic is the world’s only credible “spaceline”. Initial tickets will be priced at $250,000 a pop for a zero gravity space ride – meaning the target market is the global ultra-rich. Yet as Sir Richard Branson points out, the world’s elite rent islands in the Caribbean for $230,000 a week and only 571 human being have ever experienced space flight. Will they get takers for the ultimate thrill ride in human history? Absolutely. After all, $250,000 is the price of a one bedroom apartment in Dubai Marina! Not exactly peanuts but not a Midas fortune either. There is a large market for space tourism even at this steep price point.

With this new deal, Virgin Capital Hediosophia will have an enterprise value of $1.5 billion. Sir Richard now has a war chest of $800 million to finance the next phase of his space tourism project. The deal excites me because Virgin Galactic has the potential to disrupt traditional air travel on a quantum scale that dwarfs even the launch of Jumbo Jet and Concorde in the late 1960’s. A pie in the sky (literally!)? Yes, for now. Yet UBS estimates space will be a $850 billion economy by 2030 and I envisage “winner take all” economics in commercial space flights – and Virgin Galactic is years ahead of any rival in its technological innovation and development timeline.

The founder of Social Capital Hediosophia, ex-Facebook executive and Silicon Valley venture capitalist Chamath Palihapitiya even projected Virgin Galactic will boast abnormally high software margins “at scale”. The $800 million will enable the company to build its fleet of spaceships/mother ships and deepen the ecosystem of commercial space travel. Chamath expects profitability to be achieved by summer of 2021 and the venture evolve into a “multi-billion dollar’ business.

It is ironic that Saudi Arabia’s sovereign wealth fund was in discussion with Sir Richard to invest $1 billion in Virgin Galactic until he broke off the negotiation with Riyadh’s PIF in November 2018. 600 high net worth wannabe astronauts have pledged to pay $250,000 each for a suborbital flight on Sir Richard’s spacecraft. The firm has $80 million in client deposits and another 2500 applicants signed up for a flight. The first three year revenue target seems a slam dunk.

Will I invest in Virgin Galactic, even though Sir Richard owns only a 51% stake in the space tourism firm? Yes – since I believe in its disruption potential in global aviation and the commercial potential of space travels (asteroids full of gold and diamonds? You bet!). However, this is as speculative an investment as any biotech startup without an FDA approved drug. The valuation is not excessive – at $1.5 billion or 5.5 times forecasted $272 million EBITDA in 2023. Who knows? We may all get to jet from Dubai to London in one hour on a hypersonic Virgin Galactic flight in the next decade, flying 60,000 feet above the earth at Mach 4! Now if someone could only invent a product to render the miseries of a Heathrow arrival on a rainy English night obsolete, space will finally become the final frontier!