﻿Three, two, one, release, release, release. Fire. Fire!
Virgin Galactic is one of the most exciting high tech companies on the market,
and ARK Invest just sold completely out of it. What the f...?
Virgin Galactic is an exciting company with a promising future. And I was excited to see two
of my biggest heroes in finance, Cathie Wood and Chamath Palihapitiya holding on to a ton of it.
Fast forward to this week. Chamath has sold out months ago and Cathie Wood has just sold
her last share. Full disclaimer: I own about 350 shares at an average cost of eighteen dollars.
So in this episode, we're going to take a look at Virgin Galactic, how it fits into ARK Invest's
vision of the future and why they sold out of it anyway, as well as if I should sell out of it,
too. It's a good chance to practice separating my emotional conviction in the company
from my financial conviction in the stock. If you enjoy this type of commentary and analysis,
consider liking this video and subscribing to the channel with all notifications turned
on. That way, you'll be the first to know when I come out with new research,
regardless of how YouTube tunes its algorithm. Let's launch right into it.
Virgin Galactic has successfully completed a test flight into space, the first time in
more than two years. This is footage of the VSS unity after setting off New Mexico on Saturday.
Incredible pictures. It's absolutely terrified on this critical step in the company and its journey
towards commercial space tourism, Alex. And we're really kind of looking forward to finding out when
the next flight is. I want to know about what kind of training you're going to need to get out there.
As a space nerd and former rocket scientist, Virgin Galactic aligns very strongly with my
personal beliefs about the future of humanity spreading across the stars.
Their vision of making space tourism more accessible, as well as providing a hypersonic
point to point travel as a service, is as ambitious and noble as it is challenging
and scary. Virgin Galactic just completed a manned test flight to the edge of space
in order to collect data that's required for FAA approval for commercial passenger service.
That approval will allow them to sell tickets to citizens wanting to experience the final frontier.
Later this year, virgin Galactic will take its founder, Sir Richard Branson, into space, as well
as fly with the Italian Air Force to demonstrate their capabilities to support professional
astronaut training and research in microgravity. Just a few weeks ago, ARK Invest held over
two million shares of Virgin Galactic in ARKQ, ARK Invest's Fund themed around the autonomous
revolution. At 56 million dollars, it was the twenty first biggest position in that fund.
It was also the 18th biggest position in ARKX, ARK Invest's newest fund themed around space
exploration. They had another half million shares there, which is another fourteen million dollars,
70 million dollars total and 2.5 million shares is nothing to sneeze at. Before we look at why
ARK Invest sold, we should look at why they held the company in the first place. In their
2021 big ideas report, ARK Invest called out Orbital Aerospace as a big market opportunity
in the coming decade. ARK Invest breaks down orbital aerospace into three parts:
global connectivity, hypersonic point to point travel and humanity as a multi planet species.
I'll leave a link to my short episode on humanity as a multi planet species in the top
right hand corner of your screen right now, as well as in the description below.
It's only three minutes long and I think you'll really enjoy it. Together,
satellite connectivity and hypersonic flight will exceed three hundred and seventy billion
dollars annually, but most of that is actually attributed to hypersonics.
Here's how that math checks out. Don't worry, I'll keep it short and sweet.
Four point five billion passengers flew in twenty eighteen. That for sure is a pre pandemic number,
and that's our first clue. We'll get back to that in a second. Fifteen percent of those flights,
or 680 million of them were longer than seven hours and zero point four percent of those
flights were private. That's two point seven million private flights longer than seven hours,
which is the total addressable market for hypersonic point to point travel,
since it's going to make long flights much shorter but will be very expensive.
Two point seven million flights per year times one hundred thousand dollars per ticket
is about two hundred and seventy billion dollars annually. If you're curious why the ticket costs
around a 100000 dollars, I'll leave a link to ARK Invest's full research article in the description
below. But basically, wealthy individuals and large corporations are willing to pay
about seventy five hundred dollars per hour of time saved. That sounds crazy on its face,
but that could be the difference between an executive team being gone for a single day or
two or three days or being able to make two meetings instead of one, and so on.
Seventy five hundred dollars an hour times thirteen hours saved from New York City to Tokyo
gets us to that hundred thousand dollar number. So why dump Virgin Galactic? When I take out my
emotions and just look at the data, I do really think there are three big reasons. Let's start
with the obvious one. Four point five billion passengers flew in twenty eighteen, depending
on how you count that number, it could be as much as 60 percent lower in 2020.
That's why airline stocks got hit so hard in the pandemic. Right. So that
two hundred and seventy billion dollar market just became a one hundred and thirty five billion
dollar market real quick. ARK Invest has made their stance on the post pandemic world pretty
clear, and they're very consistent about it. People who found an easier,
more convenient way to do things from home are going to keep doing that at least much more
often than they did before. Even when things open back up, those executives that would have
paid 7500 dollars per hour, saved on a flight from New York to Tokyo have learned to do at least some
of their business over Zoom. That corporate money is never coming back to air travel.
Second, hypersonic travel still isn't Virgin Galactic main focus
yet. Listen to this interview with Virgin Galactic CEO
Michael Colglazier as he talks about their path to profitability and what they're focusing on next.
So, what is the path to profitability. When do you think this is profitable? Once it starts
getting up and running and you kind of get through the initial kind of phase on this,
you got to be making money off this. When do you think you're going to be making money off this?
Well, the first thing we need to do, obviously, is finish this test flight program and then move into
commercial service. And we believe this is going to be a supply constrained business for quite some
time. The demand of this is going to be well out in front of our ability to build and scale
the fleet up for a while. And as such, it will be reasonably expensive as it goes forward. Our
previous 600 people generally had a price around two hundred and fifty thousand each.
We have not announced what our pricing will be going forward. We said it will be higher in the
beginning. We do see pricing of around six hundred thousand dollars for per seat equivalent for our
microgravity research flights. But again, we have not put pricing out for the private astronaut
market. But from that I think you will see the unit economics of this very compelling. So we
expect to have very solid margins. And what we're really been trying to do is scale our fleet up.
We've been working in an R&D and prototyping phase for years,
doing something really hard. We're now pivoting to the manufacturing phase to build the fleet.
So, Michael, is the goal to that to get more seats at a higher price, or is the goal to that,
to get scale, to get regular people like Guy and I to get up there at cheaper prices?
It is to get you, Guy, and thousands and tens of thousands of people like you up into space.
So we'll be building a fleet of vehicles, working to turn them quickly
with a fleet of mother ships to go with it. And we do want to be able to eventually bring these price
points down so that more and more people have access into space. So it's complicated at the
beginning and most industries at the beginning start out on the higher side of the prices.
But we do expect to be able to bring those down over time. It will still
be a very profitable business model. But Alex and Guy, I know who to call when you're ready.
That's right. We should remember that Virgin Galactic's immediate focus is scaling out their
fleet of spaceships to ramp up their space tourism business in support of private astronauts and
microgravity research. While that's definitely the coolest sentence I've said in a long time,
it's not the hypersonic travel service that will unlock that one hundred and thirty five billion
dollar market. In fact, as far as I can tell, there's no mention of hypersonic
international travel anywhere in their investor presentation yet, simply because they have a
gazillion things to explore, work out, test and refine before they make that a priority.
In my opinion, that means it could be much more than a five year time horizon
to see that play out, which doesn't fit with ARK Invest's framework. As investors,
we should be honest with ourselves about whether or not that timeline fits in ours
as well. I'll leave a link to Virgin Galactic's full investor presentation in the description
below. As a tech nerd, it's a great read, but as an investor... And that leads me to my next point.
The third reason is pretty obvious as well. Virgin Galactic is tackling a very technically
challenging problem. That test flight they just completed was originally scheduled four months ago
and they had to push it due to an issue with electromagnetic interference or EMI.
I supported almost 20 missions in my time as a rocket scientist. And the truth is,
even though these delays look bad to investors,
they're very common. Having a launch get pushed back by three or even six months isn't crazy
in rocket science. Even though that's one or two full fiscal quarters to investors and analysts,
that's a big disconnect. Here's just a quick taste of the road ahead for Virgin Galactic's test
flight program and path to commercialization from the same Bloomberg interview.
We had three big points we were trying to do in this test flight. The first was to test
a new set of digital controllers that we have for the pilots, give them tighter steering.
It worked flawlessly. It went really as it curved just straight up into space in a
beautiful flight. Second thing we were doing was to ensure that we had the
electromagnetic interference issue that had the latest from earlier in the year
and all the work that we had done on that completely eliminated that problem for us.
And then finally, we collected data that we sent over to the FAA
and we believe that will give us a great opportunity for them to analyze it and
then hopefully clear our license for commercial flights. So all in all, just a beautiful day.
Michael, it's Guy in London. So what's the journey between now and that points
that license being achieved? What needs to happen? When's the next flight? What
does that net? What sort of milestones does that next fly have to achieve?
Sure. Well, this was our third flight to space with humans, the first from the state
of New Mexico. And what follows next. We have three more flights in our test flight program.
Our next one will come up with a full crew of mission specialists in the back in addition
to our two pilots. That one will be followed with a repeat. But we're asking our founder,
Richard Branson, to come on and really test the private astronaut experience for us.
We think, who better to do that? And both of those we expect to happen this summer.
And then that will be followed by our final test flight that's planned with the Italian Air Force
really showcasing how our space systems used for microgravity science research as well
as professional astronaut training. And we think that will likely happen late summer or early fall.
So it's not that SPCE is a bad stock in a vacuum,
no pun intended, but that the opportunity cost of holding it might be getting very high,
especially while there's so much technical risk. I think all of the reasons I pointed out
are why two of my biggest heroes, Chamath Palihapitiya, and Cathie Wood, sold their
Virgin Galactic positions. As much as they want to allocate money to exciting ideas and technologies,
in the end, their jobs are to find the best returns within their own investment goals.
For Chamath, that money is instead going towards fighting climate change. Trust me, I rolled my
eyes when I first heard that too. But to Chamath's credit, that's entirely consistent with his two
main investment objectives: fighting climate change and inequality. Those are big fights and
Chamath's weapon of choice is money. Those goals are pretty vague, which is why I didn't cover him
selling out. There was just not much to say there. Cathie Wood's goals are very clear and specific,
providing clearly defined thematic funds filled with advanced technologies that are changing
our lives while providing 15 percent compound annual growth rates for the next five years.
Based on everything I just said, it's clear to me that Virgin Galactic no longer fits that bill
compared to other companies that could also fit in those ARK funds, ARKQ and ARKX. As for me,
making this episode reminded me that this is an incredibly long term play, if it plays out at all.
I think I'm going to hold on to my three hundred and fifty shares of SPCE for at
least a little while longer. I'm sitting at fifty percent profits on them as I record this,
but even more importantly, Virgin Galactic is trying to make it possible for more people to
experience the wonders of space, even if it's just for a few minutes at a time.
That's a goal that really aligns with my long term vision of the future and my investment
thesis in it. Let me know in the comments below, if you're a Virgin Galactic shareholder
or if you've been thinking about buying or selling the stock, what makes you bullish
and what makes you bearish on the company in the short term or in the long term?
If you've been following along over the last few episodes, I think we're near a current
market bottom for high tech growth stocks. So if you're interested in learning about what else
Cathie Wood has been selling out of and what she's been buying at bargain basement prices,
consider liking this video and subscribing to the channel with all notifications turned
on. Better information today means better investments tomorrow. If you're interested
in playing with ARK Invest's holdings data for yourself, I'm working hard to make these
dashboards available to my patrons on Patreon and my channel members right here on YouTube.
If you're already a Patreon or a channel member, thanks for your support. I'm excited to help
you rip into this data and see what we can find together. Until next time, this is Ticker Symbol:
You. My name is Alex reminding you that the best investment you can make is in you.