Virgin Galactic Holdings Inc. (NYSE: SPCE) shares plummeted more than 17 percent on Monday morning after the space tourism company experienced a setback while conducting a test flight on Saturday. The company said the test flight did not reach the space, but it managed to land back safely.
CEO Michael Colglazier said in a statement, “Flight did not reach space as we had been planning. After being released from its mothership, the spaceship’s onboard computer that monitors the rocket motor lost connection. As designed, this triggered a fail-safe scenario that intentionally halted the ignition of the rocket motor. Following this occurrence, our pilots flew back to Spaceport America and landed gracefully as usual.”
Some industry experts believe the latest failure may delay the program for several weeks. The Saturday flight was the first of the three test flights the company initially planned. The next one would take two pilots and four staff members in the cabin. The last scheduled flight would include founder Richard Branson, besides other passengers.
A successful test flight is crucial for the company to secure a commercial spaceflight license from the Federal Aviation Administration. The company has so far sold 600 tickets to passengers at $250,000 per ticket. It plans to resume ticket sales in 2021.
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The company still has to go a long way to convince investors that it can generate consistent revenue from its unique business model. It is currently pouring a heavy amount of money to design its spacecraft. However, any major flaw in its test flights or even after the start of commercial flights can put the company in serious trouble.
More than 600 people have already booked a space trip with the company and many more are willing to sign up. But the numbers aren’t enough once it starts its commercial operations at full scale. It will certainly need more customers on regular basis to stay profitable.
It is also designing an aircraft that would travel at Mach 3, which could be a game-changer for the company, which plans to use the aircraft around the world. So, it’s not just space tourism, but also the high-speed travel business that could help it stand out from the rest in the longer run.
The company did not generate any revenue in the quarter, marking the second straight quarter without sales. Analysts on average were expecting Virgin Galactic to report a loss of 27 cents on revenue of $1.1 million.
Most analysts have a “Buy” rating for Virgin Galactic stock, with a consensus price target estimate of $26 per share. The highest price target for the stock is $35 per share, while the lowest by any analyst is $19 per share.