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Branson's second SPAC has uncomfortable parallels |  Opinion

Branson’s second SPAC has uncomfortable parallels | Opinion

Architects to incorporate blank checks are adept at validating stratospheric financial projections. Big increases in income and losses turn into profits in five-year investment plans, at least on paper. Ratings are also carefully calibrated against competitors, some flying high and others heading towards the ground. In this respect, the agreement of Virgin Orbit, a Richard Branson-backed company to be purchased by SPAC NextGen Acquisition Corp II, fits this genre. The comparison to the grandiose ambitions of Branson’s other space company, Virgin Galactic, is an unfortunate side effect.

In the mysterious world of small satellite launch, Virgin Orbit has strong claims to being unique. Its rockets begin their journey from the wings of a Boeing 747 in flight, making them more environmentally friendly, cheaper and more versatile than ground-launched satellites. The demand for small LEO satellites is likely to grow rapidly, driven by a variety of factors, from advances in communications and military technology to the development of the Internet of Things. Morgan Stanley estimates that by 2040 the space economy could reach $1.1 trillion. But Virgin Orbit is still in its infancy. Its first successful orbital launch was in January. This year’s revenue will barely reach $15 million. From there, sales must grow 217% each year to reach the revenue target of $1.6 billion in 2025.

Instead, Rocket Lab, which is valued at $4.3 billion and is its closest competitor with 21 launches in the bag, expects only 82% compound annual revenue growth, according to forecasts in Orbit’s presentation. Virgin Orbit is also stronger when it comes to profitability, forecasting 32% total operating profit, or Ebitda, over five years, compared to 22% for Rocket Lab.

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For smarter investors, Virgin Orbit may turn out to be another space-related company with even more incredible expectations: 288% annual revenue growth and 47% Ebitda profit margins. Additionally, the company is valued at 13 times revenue potential for 2025, compared to just twice that of Virgin Orbit.

Uncomfortable as Branson sees it, the reference in question is Virgin Galactic, the $6 billion tour car that recently transported the bearded Briton to the frontiers of outer space. In his quest to launch one of his companies into the financial stratosphere, Branson may inadvertently help bring another company back to Earth.