From an IPO price of $17 10 years ago to its close above $700 last week, Tesla (NASDAQ:TSLA) has been a fantastic stock for investors. The first pure-play electric car company, Tesla dominated its industry from the get-go, and it hasn't let up on the accelerator since.
And now here we are at the dawn of the 2020s, and a new industry is forming. Much like the electric car industry a decade ago, “space stocks” are a virtual unknown to investors today. What are they, what do they do, and are there any that you can invest in? And perhaps most importantly: Is there any space stock similar to Tesla 10 years ago, that you can buy today?
Eliminating the obvious
“Of course there is!” you might reply. Obviously, the space industry equivalent of Tesla is that other company owned by Elon Musk: SpaceX.
There's just one problem: SpaceX, while a terrific space company that I greatly admire, is not currently publicly traded. It's not a stock you can invest in (at least not directly), and so it cannot be “the Tesla of the Space Industry.”
Instead, I'd argue that title should go to the only pure play spaceship stock out there available for investment today. It's not SpaceX, but SpaceX rival Virgin Galactic (NYSE:SPCE) that is the “Tesla of the Space Industry.”
Virgin Galactic who?
If you're familiar with the “Virgin” name at all, it's probably through such ventures as Virgin Airways (founded by British bad-buy billionaire Sir Richard Branson in 1984) or Virgin Mobile, which he founded in 2002, and sold to Sprint seven years later) . Now, at the beginning of the Second Space Age, Branson has made a foray into space tourism with Virgin Galactic — and once again, he's offering investors a chance to own a piece of it.
For a ticket price of $250,000, Virgin Galactic plans to offer well-heeled consumers a space experience beginning with astronaut training and culminating in a flight to the edge of space. Sometime later this year, the first WhiteKnightTwo mothership (WK2) will take off from its Spaceport America in the New Mexico desert. Underneath the aircraft will be a SpaceShipTwo (SS2) spaceplane carrying six paying passengers. Once WK2 reaches altitude, SS2 will detach from its mothership and rocket to the edge of space, giving its passengers a glimpse of Earth as an orb, before descending to land airplane-style back at the spaceport … and then get ready to do it all over again.
In so doing, Virgin Galactic will become just as much a pioneer in space tourism, as Tesla once was in electric cars.
Why it's good to be “Tesla”
And there are other similarities between the two companies. One of the great advantages Elon Musk derived from taking Tesla public 10 years ago was the fact that it was able to use its publicly traded stock as a sort of “currency.”
For example, since going public in 2010, Tesla's share count has grown from just under 95 million to about 180 million shares outstanding, according to S&P Global Market Intelligence. That's 85 million shares that Tesla has issued either as stock options to its employees (in lieu of cash wages) or to the public to raise cash to fund its operations. (And boy, has Tesla ever needed cash! Since going public, and before finally turning free cash flow positive last year, Tesla racked up a total of more than $9.1 billion in negative free cash flow — losses that were covered largely by sales of Tesla stock.)
Having publicly traded shares also gave Tesla a form of “currency” that it could use to acquire other companies when money was tight. Just last year, for example, Tesla leveraged $218 million worth of its own stock to acquire battery designer Maxwell Technologies in an all-stock deal, enabling it to bring Maxwell's advances in-house — and out of the hands of Tesla's competitors. Tesla's also been reportedly looking at an acquisition of computer vision start-up DeepScale — possibly paying in stock — to further advance Tesla's self-driving capabilities. And of course, when Tesla bailed out Musk's SolarCity solar panel venture in 2016, it did so by buying it for $2.6 billion … all paid in stock.
(Although come to think of it, maybe that wasn't such a bright idea.)
Why Virgin Galactic wants to be the Tesla (of space)
All of the advantages Tesla claimed for itself as the first electric car maker to go public could now benefit Virgin Galactic as well.
You see, when Virgin Galactic entered the public stock markets through a reverse merger into shell company Social Capital Hedosophia Holdings late last year, Virgin Galactic also gained the ability to use its shares as “currency.” And in Virgin's case, this could be the advantage that allows it to break away from the pack.
Like Tesla, you see, Virgin Galactic is currently losing money and burning cash. With its share price having nearly tripled in two months, though, Virgin now has the ability to sell shares at a very expensive valuation in order to generate the cash it needs.
Furthermore, un-like Tesla, which had the electric car industry largely to itself when it began, Virgin Galactic is setting up shop in the middle of a space industry rife with competition. Virgin may be the first pure-play space company to go public, but it's got a host of private rivals, ranging from high-profile rival SpaceX, to Blue Origin, Jeff Bezos's well-funded space tourism outfit, which aims to begin commercial flights about the same as Virgin does. In adjacent space industry markets, we find Rocket Lab, a launcher of small rockets carrying small satellites to orbit that's got nearly a dozen successful launches under its belt already. In imaging, there's incumbent satellite photography specialist Maxar already in business, and smaller, faster-growing Planet Labs with an expanding constellation of mini spy satellites in orbit.
Everywhere you look, in every “space industry” market Virgin Galactic might eventually want to move into, there's competition. But so far, none of these pure-play space industry rivals is public. Not one of them has publicly traded shares to use as a currency to subsidize operational losses and buy up rivals before they become real threats.
Virgin Galactic does. And that's what makes it look like “the Tesla of the space industry” to me.