Social Capital Hedosophia (IPOA) is trading modestly higher after announcing a merger with Sir Richard Branson's Virgin Galactic, creating the first and only publicly traded commercial human spaceflight company.
Social Capital Hedosophia is a special purpose acquisition company (SPAC), or a blank check company, that went public in September of 2017, selling 60 mln shares at $10. The security had only two months left until it would have been dissolved without making an investment.
Virgin Galactic is a vertically integrated aerospace company specializing in commercial human spaceflight that intends to offer its customers a "unique, multi-day experience culminating in a personal spaceflight that includes out-of-seat zero gravity and views of Planet Earth from space."
Social Capital Hedosophia will own up to 49% of the company. Chamath Palihapitiya, the outspoken venture capitalist behind the SPAC, will become Chairman of the combined entity while investing an additional $100 mln in the deal. The existing Virgin Galactic management team will remain in place.
The pro forma enterprise value of the merger is $1.5 bln. The release states that the deal represents 2.5x estimated revenue and 5.5x estimated EBITDA for 2023. That means the company is projecting $600 mln in revenue and ~$270 mln in EBITDA in 2023 (with healthy 45% margins). The projection seems somewhat like pie in the sky considering that the company hasn't started commercial operations just yet.
The company expects to fly its first customers within a year and become profitable by 2021. Late last year, Sir Richard Branson said commercial operations could start in 2019.
Virgin Galactic already has customer reservations from more than 600 people in 60 countries representing ~$80 mln in total collected deposits and $120 mln of potential revenue. Virgin Galactic has the lead in sending tourists to space, but Elon Musk's SpaceX and Jeff Bezos' Blue Origin are also pushing the limits with ventures into outer space.
Many had expected Chamath Palihapitiya to invest in a software unicorn -- his sweet spot. He hit it big as an early employee scaling Facebook.
While this is certainly a risky and unconventional venture, Chamath says the risk/reward is compelling and that Virgin Galactic "looks like a software business under the hood."