Space is the one area of business where even the sky isn’t the limit. An oft-quoted estimate reckons the industry could reach $1.1tn in annual revenue by 2040. But costs and risks are hefty too, as the failure of Virgin Orbit’s UK satellite launch underlined.
Such flops are hardly uncommon. SpaceX, Elon Musk’s space exploration company, has suffered plenty of high-profile setbacks. Last month, Vega C, a midsized rocket developed by the European Space Agency (ESA), failed just minutes after lift-off.
The difference is that SpaceX is a private company that benefits from Musk’s fundraising prowess while Vega C is government funded. Virgin Orbit, which went public in the US less than 13 months ago through a merger with a blank-cheque company, is beholden to the whims of shareholders. Their patience for loss-making companies is wearing thin.
The rapid descent in Virgin Orbit’s share price underscores this point. The stock fell 9 per cent to $1.71 on Tuesday, taking it well below its $10 debut price.
The company claims its system for launching rockets from jet aircraft will lower the cost of sending satellites into space. It has conducted four successful launches from the Mojave Desert in the US.
But Monday’s mission failure — which resulted in the loss of all of its customers’ satellites — will make would-be clients hesitant. Virgin Orbit needs all the business it can get. It pulled in just $33mn in revenue in the first nine months of 2022 while net losses widened to $139.5mn. Virgin Orbit is burning cash, with negative free cash flow standing at $175mn. The company’s cash and cash equivalents dwindled from $194.2mn at the end of 2021 to $71.2mn at the end of the third quarter.
Rising rates and weaker economic conditions make fundraising more onerous. Virgin Orbit abandoned plans for a securities offering in November. Instead, it received $45mn from Branson’s Virgin Group and Virgin Investment through two convertible note sales last year.
It may soon need a third booster.
Our popular newsletter for premium subscribers is published twice-weekly. On Wednesday we analyse a hot topic from a world financial centre. On Friday we dissect the week’s big themes. Please sign up here.