Virgin Galactic (NASDAQ:SPCE) and SPCE stock are a perfect example of what is wrong with special purpose acquisition companies (SPACs).
As Groucho Marx said in The Cocoanuts nearly a century ago, “You can have any kind of a home you want. You can even get stucco. Oh, how you can get stuck-oh!”
The fact is that SPACs are speculations. They’re not investments. Some may turn into investments. But these deals have not been vetted by investment bankers. The claims made by their sponsors didn’t have to be true at the time.
Chamath Palihapitiya, who brought Virgin Galactic to market as IPOA, said as much, that all he had to do to make his deals go was get on CNBC and talk about them.
But the gift of the gab comes with a price. What’s the point of stories that aren’t even true?
SPCE Stock and What Went Up
Virgin Galactic was a Richard Branson research project.
Branson wanted to see if a business could be built off SpaceShipOne, the cheap space plane Burt Rutan sent to a height of 62 miles back in 2003.
Virgin Galactic built SpaceShipTwo and said it would turn that into a business. But at a price of $250,000 for a 90-minute ride it was always an impractical business model.
It also took great effort to get going. Virgin Galactic has been burning through $200 million each year. With private equity unwilling to provide more money, Branson turned to Palihapitiya, who took it to the market as chairman. They rode that rocket to a high of $54/share in February, a market cap of more than $10 billion.
None of this ever made sense to me. Even while the stock was rising, I was warning against it.
Looking at History
Branson has spent his life starting companies, selling stock, and then selling out as those businesses began to fail. There was Virgin Mail Order, Virgin Records, Virgin Games, Virgin Atlantic airlines, Virgin Holidays, Virgin Radio, Virgin Cola, Virgin Cinema, Virgin Trains, even Virgin Cosmetics. Each was a separate company, with its own stock. Branson would launch them, control them, then watch them fade like fireflies.
Branson built himself a fortune now estimated at $4.2 billion. But if you sought a long-term investment in any of these companies you came up empty. Everything Branson does has a reason, and the reason is Branson. Even his initial moves out of Virgin Galactic, a year ago, were pitched as protection for his other businesses.
There’s nothing illegal or even wrong about any of this. Richard Branson is the ultimate entrepreneur, the billionaire as brand, like Malcolm Forbes only with more money and, sometimes, a profit to share.
I just wouldn’t put my retirement money on him.
The Bottom Line
Branson has gotten more than money out of Virgin Galactic. There’s SpaceShip Three, also called the Virgin Imagine. There’s Virgin Orbit, which Branson says will launch satellites.
But even before Virgin books a single tourist flight, Jeff Bezos’ Blue Origin plans to launch with a paying passenger in July. SpaceX will launch with an all-civilian crew in the fall. UBS talks about flying halfway around the world in a half-hour by 2030, using space as current planes use the poles.
Just don’t expect Virgin Galactic to be there. Palihapitiya has left. Branson has left. Even Cathie Wood’s ARK Space Exploration & Innovation (NYSEARCA:ARKX) fund is out. How can the world’s only space stock not be in the only space fund?
Everyone has left this Ferris Wheel. Why are you still on it? You don’t want to be stuck up there when they turn out the lights at the amusement park.
At the time of publication, Dana Blankenhorn directly owned no shares, directly or indirectly, in any company mentioned in this article.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com, tweet him at @danablankenhorn, or subscribe to his Substack https://danafblankenhorn.substack.com/.