Today, we're taking to the skies, looking into space travel and the investment opportunities that may be found in the next frontier of commercial trips. What's the best way to play it now? I'm here with Justus Parmar who's Fortuna Investments CEO. Thanks so much for joining us.
It's a presidential year. There's all sorts of great activities starting to be formed. So we actually think that the whole sector is going to rise this year because of some of these amazing catalysts that are coming.
As you could see on the previous slide that the stock had been consolidating around the $4 to $5 range. And to your point, Julie, the company has done over 40 successful space launches. That's very, very, very difficult to do. There's only a handful of companies in the world that have actually been able to do that, SpaceX being the leading candidate.
JULIE HYMAN: Right. And then if you look at the forward looking here-- situation here, the company has new contracts as well that investors can look to.
JUSTUS PARMAR: Yeah, you bet. They just announced-- about a month ago, they announced a $500-million record contract, an international contract. So a company, again, you don't have to be a mathematician to start adding some of these things up where you're in a depressed space or sector, you've got a company that's been performing really well.
I've talked to Peter Beck, the CEO, a number of times. Really, really great, smart entrepreneur starting to strap on massive contracts like these $500-million contracts. There's a lot of potential upside opportunity in something like this.
JULIE HYMAN: And to be clear, these are for-- when they take the rockets up, are they putting satellites into space? They're not people riding. This is not sort of tourism, correct?
JUSTUS PARMAR: Correct, exactly. So a company like Rocket Labs is taking, as you mentioned, satellites, hardware, payload, non-human things into outer space. There are other companies like Blue Origin and Virgin Galactic who are taking tourists or people like you and I into outer space.
JULIE HYMAN: Well, I guess we talked about the new contracts a little bit already here. But when we look at the market share in this industry as well, as we mentioned, Rocket Lab, there's not that many players that are doing this kind of thing. So how does Rocket stack up against some of the other players?
JUSTUS PARMAR: Well, I mean-- and that's just it, a lot of companies have tried. Unfortunately, a lot of companies have failed. But again, this is very, very complicated stuff.
This is not tourism, or hospitality, or warehouses, or something that's-- I don't want to say more basic. They're taking things into outer space. This is very, very difficult stuff.
And so Rocket Labs has emerged as earlier stage-- it's a $2-billion market cap, so it's not $1-trillion company. It's not a Facebook. It's not a Tesla. It's an early speculative company. But if they continue on this trajectory, I think their future is quite bright.
JULIE HYMAN: All right, let's talk about the risks as we like to do. And you've sort of alluded to it before that it is a small company and it's expensive to do this stuff. Yes, they're bringing in revenue to your point. But it's expensive to get these rockets into space and they're not very large.
JUSTUS PARMAR: You bet. And so they're-- from everything we can gather, they're not a profitable company as of yet. They're striving to be kind to cash flow break even from our best estimates.
They spend a lot of money in research and development. They're going on to a new rocket in this coming year. So they've got a smaller rocket with a smaller capsule and they want to be a mid-range player.
So they're going to be spending a lot of money in research and development into developing this mid-range rocket. And so any time you're jumping up a class there is inherently execution risk in some of this. And so ultimately, from my perspective at least, the biggest risks are Peter Beck and the team being able to execute these very, very complicated challenging things.
JULIE HYMAN: Got you. And just to be clear for disclosure purposes, do you own Rocket Lab?
JUSTUS PARMAR: No, we don't. We do not own Rocket Labs.
JULIE HYMAN: All right, let's get to the one that you do not like and this is Virgin Galactic. This chart is a little bit different here. It's gone quite down over the past year. Better sort of no name probably in the space here, but let's get into why you don't like it. Basically, you're saying here not necessarily economically viable, the model that exists for this one
JUSTUS PARMAR: That's right. And just to be clear, we're not haters. We're extremely bullish of the entire space industry and sector. We've got multiple investments in different areas of the field.
But when you look at a company like Virgin Galactic-- and by the way. I'm a huge Richard Branson fan. He's been a great entrepreneur. He's done tremendously well in records, and cruise lines, and airlines, and all sorts of amazing things. But this particular company to date, they've had a lot of serious challenges.
They've gone through over $1 billion in capital. They've had a technology that's been really challenging to integrate. And currently, they've actually just recently, as of last week, they've launched their 11th successful spaceflight.
So what that means is they've actually got humans like you and I into outer space 11 times successfully, which is remarkable. That's really, really exciting. So there is some really, really good stuff in there, but there's also some stuff that's seriously challenged.
JULIE HYMAN: Well, I mean 11 is great, but you also pointed out in your notes that's difficult to scale, right? If you look at the sort of cost per passenger and revenue per passenger with these relatively small flights into space, they're not going to make money unless you can make a much bigger rocket, for example, or maybe fly a lot more missions.
JUSTUS PARMAR: That's just it. And so when you run the back of the envelope calculations, right, so each rocket's got eight seats. And so their last price sheet is it's $250,000 or a quarter million dollars per head to go to outer space. Expensive but not a terribly bad deal in a certain capacity.
And so they've got eight seats on the rocket. Let's assume they're able to do one a month, which they haven't been able to do yet. And so 250 times 8 is $2 million.
$2 million times 12 months is $24 million. So their revenue profile currently, if they do one a month, is $24 million, which might sound like a lot of money. But then when you look at their balance sheet and the financial statements, they're losing almost $200 million a quarter.
JULIE HYMAN: Right.
JUSTUS PARMAR: And so there's a big discrepancy there unfortunately.
JULIE HYMAN: And they're trying to raise money through selling more shares. So then that dilutes the value for existing shareholders.
JUSTUS PARMAR: That's exactly it. So even their last financing, it wasn't a traditional Goldman Sachs financing. It was something called an ATM, At The Market.
And what that means is the company will actually issue shares from Treasury and fulfill the demand in the marketplace. So effectively, it actually caps the stock in a certain way. And so when you actually look at the company and you really look at it, they've got $1.1 billion in assets on their balance sheet-- sorry, liquid assets, so cash and cash equivalents.
Their market cap, if you pull them up, they're only about a $800 million valued company. So they have more cash than their actual total market cap. So they're actually minus $200 worth of value. And that gives you, I guess, maybe an idea of how the Street or investors are viewing this at this current time.
JULIE HYMAN: OK, just like we looked at the risk to the upside for Rocket, risks to the downside here that they would you know slash costs perhaps and make it happen for them.
JUSTUS PARMAR: Yeah, so I think they've been trying to slash costs, especially over this last quarter here. They've still got a tremendously long way to go on that. But I think the bigger elephant in the room in a certain way is actually the fact that we just-- or the point that we just talked about, which is economically, it's going to be really hard to crank a lot of revenue in that current eight-seat rocket.
And so even those eight seats, they've actually been comping some of them for celebrities and different people like that. So they're actually not even doing the $2 million per head. So they're inherently-- much like the Rocket Labs example, they're inherently going to have to make a brand new rocket and capsule to really start to carry more passengers and make it more economical.
And so the good news is they have a $1 billion or $1.1 billion to do it and a bit of a runway. But again, I guess the topic or the bumper sticker is this is very, very challenging stuff. And so--
JULIE HYMAN: Got you.
JUSTUS PARMAR: --we'll see how it shakes out.
JULIE HYMAN: All right, well, Justus, thanks so much. Let's summarize what you've talked about here. You say by Rocket Lab based on the company's success so far, the potential for growth, a lot of new contracts. On the other side, you say avoid Virgin Galactic given the slowing-- the economic viability there and the current positioning of the stock
Thank you so much, Justus. Appreciate it, Justus Parmar. And thanks to you for watching. Goodbye or Goodbye. We're going to be bringing you new episodes three times a week at 3:30 PM Eastern. We'll be right back.
