To infinity and beyond: the false promise of space

Design by Mellisa Lee. Buy this photo. I’ll be honest, I’ve never understood the hype around space. While everyone in kindergarten ran around saying that they wanted to be the president or an astronaut, I sat quietly, ashamed that I aspired to be a teacher. Our dreams have inevitably changed since then, and as a third-year Business student, I — like many of my peers — don’t really know what I want to be. What I do know is that I still don’t want to be an astronaut; my sensitive stomach can barely handle a midnight Taco Bell run. However, for those interested in space travel, the job market has never been better. We are amid a space travel renaissance, fueled by the rise of commercial players like SpaceX , Blue Origin and many small competitors with big ideas that receive NASA seed funding. And, with the Perseverance rover recently landing on Mars and NASA’s modern moon mission, Project Artemis , in the works, there are billions of dollars in government contracts available. This points to promising futures for aerospace engineers looking to make their marks at companies like Lockheed Martin or Boeing . The excitement has even spread to the military ranks, as repeated calls for “the next class of astronauts” have amplified. And you know that where there is excitement, there is money; and where there is money, there are Wall Street investors ready to lose it. Enter: Virgin Galactic . In 2004, Virgin Galactic was founded as an extension of the Virgin Group, funded by British billionaire Richard Branson, with the mission of fulfilling the long-awaited fantasy of consumer space travel. They initially predicted that they would make history by 2009, taking customers on space flights. However, the company took until 2019 to actually make history, but it wasn’t by being successful in their mission. In fact, they were quite far from it, coming off of several failed space flights despite Branson’s repeated bullish predictions . Instead, they made their mark by becoming the first publicly traded space company through a merger with a special purpose acquisition company, usually referred to as a SPAC. Essentially, a SPAC is a company whose only purpose is to raise capital through an initial public offering in order to acquire an existing company. After the acquisition, the SPAC serves as the stock market stand-in for the merged company it holds. Since 2019, Virgin Galactic Holdings Incorporated ( NYSE: SPCE ) has been through a long, hard ride, seeing the stock tumble as low as $14.21 per share and peak as high as $62.80 per share within the last year. The stock price has consistently declined since mid-February when the company reported negative earnings per share for the second quarter in a row and had no revenue in the second or third quarters of fiscal year 2020. In addition, the operations schedule was delayed by the pandemic and, despite releasing a shiny new spaceplane , they have grounded all test flights until May due to safety concerns. Now, analysts anticipate that the company will report negative earnings per share in the first fiscal quarter of 2021 and $1.8 million in revenue, which — compared to the company’s $6.85 billion valuation — is disappointing at best. That said, analysts also anticipate that the company’s revenue will increase thirty-fold this year, reaching $20.7 million — still not enough to justify their astronomical valuation. However, this type of projection is exactly the issue at hand, as — just a reminder — this company has never once turned a profit . Their current capabilities also show no signs that they could reach commercial space flight or obtain more government contracts by the end of the year. Now, this is not just an issue with Virgin Galactic. The issue is a systemic failure in our market economy due to one fundamental problem : Investors, generally, are not scientists or engineers. Thus, there is often a large information gap that incentivizes commercial space companies to make bold, unrealistic predictions and blame the science when they inevitably miss their financial targets, even when the issue is poor management. Then, investors are unable to properly identify the source of the problem because of the information shield that SPACs give companies. Therefore, stock prices and valuations still surge despite shambolic underlying financial performance and shaky — if not fraudulent — scientific data. This kind of virtuous cycle is the foundation for market bubbles , like those in housing and technology in the 2000s. However, due to the market’s recent instability with the GameStop fiasco and cryptocurrency craze , it is obvious that the modern stock market has become somewhat divorced from reality, which should scare us all. We are reaching a point of unprecedented market uncertainty, where, instead of relying on underlying financials and economics, our market is fueled by emotions and liquidity — both of which are currently promising because of Congress’ unprecedented spending and our increasing mass vaccination push . However, when Congress stops spending like a college student at Ragstock the day before Halloween or our national mood sours, the market may correct itself. That spells dire trouble for ordinary folks’ college and retirement funds, and it is fundamentally unfair that Wall Street’s crazes might once again hit the folks on Main Street. But, hey, maybe we’ll have the chance to form a functioning market at Elon Musk’s moon colony. Keith Johnstone is an Opinion Columnist and can be reached at keithja@umich.edu . Continue reading

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