A Closer Look at the Virgin Galactic-Social Capital Merger Deal
by Douglas Messier
Managing Editor
As shareholders in Chamath Palihapitiya’s Social Capital Hedosophia prepare to vote on an $808 million merger with Richard Branson’s Virgin Galactic on Monday, it seemed like a good time to take a closer look at it.
Fortunately, Virgin and Social Capital have filed a new 8K form with the Securities and Exchange Commission (SEC) that includes an updated PowerPoint document titled Analyst Day Presentation that is dated Sept. 5.
The presentation is 100 slides long. I’ve gone through and excerpted the highlights so that you don’t have to. But, if you want to read the whole thing, visit this page and scroll down.
Before we dig into the numbers, let’s take a look at the disclaimer that was the second slide in the investor presentation. (Read a clearer version here.)
To summarize, the investor presentation is for informational purposes only, is not all inclusive, and includes a lot of “forward looking statements” about the business that might never happen. The financial and operating forecasts and projections have not been reviewed by independent public accountants.
With that said, let’s look at the projections in the presentation.
Financial Overview
Virgin Galactic is planning to complete its flight test program for VSS Enterprise within the next nine months to begin commercial SpaceShipTwo service in June 2020.
Initial flights by VSS Enterprise will carry four passengers, with an increase to five later on. Two other SpaceShipTwo vehicles that are now under construction will begin with five passengers with an increase to six. Two other vehicles will carry six passengers from the start.
The slide above doesn’t show it, but the plan is to have five SpaceShipTwo spacecraft flying by 2023.
The above table shows revenues of $1.25 million per flight based on five passengers paying $250,000 apiece. With costs figured in, Virgin is estimating to clear $820,000 per flight. The company is also expecting costs of major elements such as the rocket motor — which is not reusable — to gradually come down.
The ticket price used is interesting. Up until 2013, customers who signed up put down deposits for tickets that cost $200,000. At that point, the company had signed up more than 500 people. Virgin Galactic announced actor Ashton Kutcher as the 500th signup on March 22, 2012.
The company say it has more than 600 passengers signed up. This is an increase from the 594 passengers listed in the investor presentation filed with the SEC in July when the deal was announced.
The slide above shows the four-day flight experience in which ticket holders will undergo three days of training before flying aboard SpaceShipTwo. The company also plans to maintain an alumni network that it will use to publicize its spaceflights and other Virgin services and experiences.
This slide shows Virgin Galactic’s sales strategy. The company says that more than 3,000 people have registered interest in flights since SpaceShipTwo VSS Unity flew above 50 miles last December.
Virgin Galactic stopped selling tickets after the fatal crash of SpaceShipTwo VSS Enterprise on Oct. 31, 2014. At that point, the company said it had more than 700 passengers.
A Virgin Galactic spokeswoman told Parabolic Arc that the company plans to begin selling tickets again after the first commercial flight next year. Branson has said Virgin plans to increase ticket prices, but he did not reveal by how much.
The slide above shows that revenues are projected to increase from $31 million next year next year to $570 million through 2023.
Virgin Galactic is projecting to launch SpaceShipTwos 571 times during the first four years of operation. Flights would increase from 16 in next year to 270 in 2023 as the number of operational vehicles rises from one to five.
| SpaceShipTwo Flight and Passenger Projections | ||||
| 2020 | 2021 | 2022 | 2023 | |
| SpaceShipTwo vehicles | 2 | 3 | 4 | 5 |
| Total flights per year | 16 | 115 | 170 | 270 |
| Total # of passengers flown | 66 | 646 | 965 | 1,565 |
| Launch cadence | 13.4 days* | 3.18 days (76 hours) | 2.14 days (51.5 hours) | 1.35 days (32.4 hours) |
| Average number of flights per vehicle | 8 | 38.33 | 42.5 | 54 |
| Number of passengers per flight | 4.1 | 5.6 | 5.7 | 5.8 |
| Sources: Virgin Galactic/Social Capital Hedosophia data and Parabolic Arc calculations * Assumes seven-month flight period beginning in June 2020 | ||||
The number of passengers would rise from 66 people on 16 flights in 2020 to 1,565 people on 270 flights in 2023. The four year total would be 3,242 people.
The launch cadence would rise sharply from once every 76 hours in 2021 to every 32.4 hours in 2023. The five SpaceShipTwos would be flying an average of 54 times per year in 2023.
The slide above shows Virgin’s planned operational flow for SpaceShipTwo.
Virgin stresses that SpaceShipTwo has a fast turnaround between flights.
Gross profits are estimated at $4 million for next year rises to $431 million in 2023. Factoring in earnings before interest, tax, depreciation and amortization (EBITDA), Virgin Galactic is expecting to lose $104 million next year with a slight profit of $12 million in 2021 rising to $274 million two years later.
Virgin Galactic expects that capital expenses to decline significantly as it learns how to build and operate its vehicles. The company has also expended a significant amount in developing the initial vehicles.
The company currently has no debt. Virgin Galactic’s burn rate is approximately $16 million per month or $190 million annually.
Branson has estimated that Virgin has spent $1 billion to $1.3 billion to date on its space ventures, which include Virgin Galactic, The Spaceship Company and Virgin Orbit (which has been spun off as a separate company).
Above is the financial summary for the proposed public company.
So, that’s the overview of what Virgin Galactic and Social Capital Hedosophia are projecting. Whether they can reach the flight cadence, passenger numbers and revenues they are estimating remains to be seen.
Those questions will be the subject of a future story.
14 responses to “A Closer Look at the Virgin Galactic-Social Capital Merger Deal”
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This ain’t it, chief.
I don’t see an era of suborbital joyrides taking off from here.
So it looks like Chamath Palihapitiya’s strategy for Social Capital Hedosophiato to succeed by “investing in Unicorns” has run out of time since he wasn’t able to find any suitable ones in Silicon Valley, while Richard Branson quest for suborbital tourism seems to be hanging on finding more outside investment. So basically what these two drowning ventures hope is by grasping on to each other they will stay afloat.
Reminds me of the great Penn Central merger between two drowning railroads. At least the government won’t need to step in this time to clean up the mess that results.
Excellent work!
Yes, this could be put together with other articles you wrote and make a good book on the failure of the X-Prize model for opening space.
I don’t see a risk factor calculated for the first amateur astronaut fatality. What will the thrill market be after the first accident? How many perfect flights will have to occur before Branson recoups his $1.3 billion investment?
Like the first time someone dies in a car? a plane? A train? A ship? A roller coaster? A stairs? A bathtub? Or climbing a tree?
A lot of people use cars, planes, trains, ships, and bathtubs for their everyday and mundane needs. Plenty of moms and wives would tell their kids/spouses not to sky dive or cave dive because the odds of dying are much worse than they are in cars, planes, trains, ships, and bathtubs for their everyday and mundane needs. A joyride on a spacecraft is optional and unnecessary in every sense of the words. So if you are a businessman investing YOUR own money in a tourism rocketship business, you should calculate-in the risk your business would collapse if enough people aren’t willing to take the risk. This merger proposal shows the risks the proponents are willing to take with “Other People’s Money.”
These things are in no way comparable in terms of cost, risk, necessity, people “processed”. But, OK, I guess, if that’s the best line of argument you have….
I personally think that if an SS2 burns a hole in the ground, that’s it. There are other vehicles coming along that are likely to be safer (and possibly more capable). Rich people tend to like being not dead, and they will go with the safer option, should there be one.
SS2 is too little, far too late.
30000 – 50000 people have died in cars .. forever .. that is a small city every year ..
Yes that is a good argument
Reminds me of that old saying, Steve, involving the three words, “slip”, “cup” and “lip”. It is quite likely that Richard Branson is going to find out first hand that unfunny truth behind that now old joke, “How do you become a millionaire investing in ventures to do with space? Simple, start out a billionaire.” Maybe, they, VG etc., should speak to NASA about how things tend to go once procedures become considered as “routine”. 🙁 Regards, Paul.
it will depend on how long things go before the first accident and why the accident happened…the odds are pretty good that they have solved the accident inducing problems
Oh, that’s right. After the Halloween Surprise, VG brought in some… Top… men.
I think this is a 10 year business…if you are optimistic.
5 years at the outside, I suspect. It is all a decade too late.