Virgin Galactic shares plunge. It always needs more money.
Virgin Galactic stock has a problem. Every time it goes up on good news, it goes back down, and there’s a good reason for that. As a capital-intensive startup, it always needs more money.
Case in point: Virgin Galactic shares are down more than 10% in early trading Friday after it said it would raise up to $400 million through the sale of common stock to fund the development of the spaceship fleet. In a Thursday announcement, Virgin Galactic (ticker: SPCE) also said the proceeds will be used to scale its commercial operations.
The offer looks opportunistic. Shares have risen recently after the company announced details of its first commercial flight into space last week. It had said in a statement that Galactic 01[ads1] will fly between June 27 and June 30. Before that announcement, the stock traded around $4.06 and closed Tuesday at $6.01.
The shares had already given back some of the gains, closing at $5.32 on Thursday, and are now down 14%, at $4.57, in premarket trading on Friday.
S&P 500
and
Nasdaq Composite
Futures are respectively approx. 0.4% and 0.5%.
This is just the latest share sale, and Virgin Galactic said in Thursday’s filing that it recently completed a $300 million “on the market” offering. That the company continues to sell shares should come as no surprise. Virgin Galactic ended the first quarter with approximately $900 million in cash and securities on the books. It’s a healthy balance, but Wall Street expects the company to spend up to $2 billion over the next four years building its business.
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The company did not immediately respond to a request for comment on the timing of additional capital raising or whether any would be needed.
The problem is that analysts aren’t projecting positive free cash flow until toward the end of the decade, when annual revenue is projected to be north of $700 million. Sales in 2023 are expected to be around $11 million.
This is the first year of commercial operation for the company. The start of commercial flights has taken longer than investors had hoped. In July 2021, when founder Richard Branson and others completed a test flight, the stock was trading at around $50. But a series of technical and regulatory issues since then caused delays.
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So as exciting as it is to see Virgin Galactic stock hit good news, just remember that another stock selloff could be right around the corner.
Write to Rupert Steiner at rupert.steiner@barrons.com and Al Root at allen.root@dowjones.com
