Virgin Galactic
stock has a problem. Every time it goes up on good news, it goes down again, and there’s a good reason for that. As a capital-intensive start-up, it always needs more money.
Case in point:
Virgin Galactic
stock is down more than 10% in early Friday trading after it said it would raise up to $400 million through the sale of common shares to fund the development of its spaceship fleet. In a Thursday filing Virgin Galactic (ticker: SPCE) also said the proceeds would be used to help scale its commercial operations.
The offering looks opportunistic. Shares have soared recently after the company announced details of its first commercial flight into space last week. It had said in a statement that Galactic 01 will fly between June 27 and June 30. Before that announcement, the stock was trading around $4.06 and closed on Tuesday at $6.01. “[We] believe SPCE timed the market well, taking advantage of recent strength to exhaust its prior ATM offering and establish a new program,” writes KeyBanc analyst Michael Leshock.
Shares had already given back some of the gains, closing at $5.32 on Thursday, and are now down 19%, to $4.325, in premarket trading Friday. The
S&P 500
and
Nasdaq Composite
are off about 0.7% and 1.1%, respectively.
This is only the most recent stock sale, with Virgin Galactic saying in Thursday’s filing that it recently completed an “at the market” offering of $300 million. That the company keeps selling stock shouldn’t come as a surprise. Virgin Galactic ended the first quarter with roughly $900 million in cash and securities on its books. That’s a healthy balance, but Wall Street expects the company to use up to $2 billion over the next four years building its business.
The company didn’t immediately respond to a request for comment about the timing for additional capital raises or if any would be needed.
The problem is that analysts don’t project positive free cash flow until near the end of the decade when annual sales are projected to be north of $700 million. Sales in 2023 are expected to be about $11 million.
This is the first year of commercial operations 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 string of technical and regulatory problems since then caused delays.
So as exciting as it is to see Virgin Galactic stock pop on good news, just remember that another stock sale could be just around the corner.
Write to Rupert Steiner at rupert.steiner@barrons.com and Al Root at allen.root@dowjones.com
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