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Thursday, August 17, 2023

Back On The Biz Beat As Another Big NM Economic Hope Encounters Harsh Reality And A Crashing Stock; Virgin Galactic Numbers Are Frightful And Wall Street Runs; That Follows Warning Flags Over Maxeon's Big Solar Announcement 

We brought you the exclusive Monday on the financial peril facing the state's latest big economic catch as the stock of Maxeon crashed 32 percent on the very day top elected officials gathered with biz leaders to announce the company's new solar manufacturing plant for ABQ's Mea del Sol. Now there's more news the state needs to know about another company long held out as a potential major economic driver. . .

The stock of Virgin Galactic, the chief tenant of Spaceport America near T or C,  crashed to an all time low Wednesday of $2.62 a share, the lowest since the stock went public on the NASDAQ (SPCE) in 2019. 

The crash is despite Virgin's success this month in finally launching the first paying tourists into suborbital space who pay up to $400,000 for the privilege of experiencing a few minutes of weightlessness in sub-orbit.

It turns out the company piloted by billionaire Richard Branson has a broken business model and there are serious doubts it can ever be repaired, thus the cratering of the stock.  

This is vital information for New Mexico legislators and local leaders to digest as Spaceport operations continue to get an annual legislative subsidy from taxpayers, in addition to the main funding from a voter approved tax passed in 2007.

Clearly, with the red flags flying on Wall Street state leadership needs to prepare to reimagine the Spaceport without Virgin Galactic:

--The long-term business model isn't based around the current version of the spacecraft. A second-generation spacecraft is in the early stages of development, and that is what management believes will lead to a profitable operation. This isn't exactly a ringing endorsement of the current business, noting that the facilities to build the next class of ship aren't expected to be operating until 2024, with spacecraft testing set for 2025, and a first commercial flight not anticipated in 2026.

--In the second quarter, Virgin lost $134 million and had negative free cash flow of $135 million. That's not sustainable. In fact, for the second half of 2023, management expects negative cash flow of  (up to) $260 million. That compares to roughly $980 million of cash and investments on the company's balance sheet. At the projected burn rate Virgin Galactic is a bit shy of two years' worth of cash. It isn't going to make it until 2026 without raising more capital. And that's exactly what the company did in the second quarter, issuing 55 million shares of common stock to raise $241 million for the business. 

--There are clear warning bells at Virgin Galactic that investors need to listen to. Maybe the company manages to pull off the long-term plan and creates a sustainable business by 2026. But the risks seem like they outweigh the rewards right now as the company loses money, burns cash, and sells stock (despite a massive share price decline) to help fund its huge capital investment plans.

It's been a couple of busy business weeks in New Mexico but the champagne corks need to be put back on the bottles. You might not know that from the cheerleading coming from the politicos and the mainstream media but with a little digging the truth turns up--and it's exclusively yours courtesy of. . . 

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(c)NM POLITICS WITH JOE MONAHAN 2023

Posted by: Joe Monahan / Thursday, August 17, 2023
 
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