RKT Stock – Virgin Galactic Falls To Earth As Stock Drops 13.5%
Virgin Galactic, (SPCE) a space tourism company that has yet to send a tourist into space, seemed to defy gravity when it touched an all-time high of 62.80 in February. But more recently the space tourism company has fallen out of orbit, dropping -13.57%, to close at 23.06 on April 15.
On a day when the Dow Jones went up over 300 points, closing above 34,000 for the first time, Virgin Galactic was one of the biggest losers. Although the company took its beating on the traditional ‘tax day’ of April 15, IRS issues were not behind the sharp decline. Instead, stock sales by founder and major investor Richard Branson are thought to have influenced the rush to the exits.
As CNBC reported, a securities filing on April 14 revealed that founder Sir Richard Branson sold more than 5.5 million shares of Virgin Galactic at over $150 million over the previous three days. Branson, with venture capitalist Chamath Palihapitiya, took Virgin Galactic public in 2019 through a SPAC merger. In March, a month before Branson’s share sale, Palihapitiya sold his personal stake in the company of 6.2 million shares for around $213 million, regulatory filings showed.
Nonetheless, Palihapitiya, whose fund still controls 15.8 million shares, declared, “I continue to be a significant investor in Virgin Galactic through Social Capital Hedosophia Holdings and I remain as dedicated as ever to Virgin Galactic’s team, mission and prospects.”
Although Virgin Galactic was listed on the stock market in 2019, Branson actually founded the company in 2004, based on a collaboration with Scaled Composites, creators of record-setting Spaceship One. Although Branson announced his intention to launch the world’s first commercial space tourism company in 2004, Virgin had registered the Galactic name as far back as 1999.
The fledgling venture reaped huge publicity after Spaceship One completed its X-Prize winning flight to the edge of the atmosphere in 2004. (This reporter was there.) Spaceship One is now in the Smithsonian, as Virgin Galactic built a spaceport in the New Mexico desert as well as more advanced ‘motherships’ and SpaceShip Two.
But despite this long history, Virgin Galactic has put none of 8,000 potential space tourists into orbit on a $250,000 flight. Celebrities, including Ashton Kutcher, Katy Perry and Justin Bieber, were reportedly on the Virgin Galactic waiting list although sadly Stephen Hawking didn’t get to use his free ticket.
A 2014 article noted, “Virgin Galactic, which initially announced the arrival of commercial spaceflight “as soon as 2007,” then “2008,” “2009,” “2010,” and so on, recently stated they will begin “as early as next year.” Unfortunately, this was followed by a 2014 accident that killed a test pilot.
After an investigation, the company resumed test flights, but in December 2020 electromagnetic interference caused a flight computer to reboot in the midst of rocket ignition. Fortunately the pilots were able to glide to a safe landing at Spaceport America in New Mexico.
With the new problem, tests of the SpaceShipTwo flight vehicle “Unity” was pushed from February to May of this year. The first commercial flight has now been pushed back to 2022.
Meanwhile, travel-focused Virgin Group was suffering during COVID-19. Already struggling with a $3.1 billion debt load before the pandemic, Virgin Australia laid off many employees and went into administration, comparable to U.S. bankruptcy. What’s left is now owned by Bain Capital, although the airline has recently shown signs of life as the domestic market picks up.
In May of 2020, Branson’s other airline, Virgin Atlantic, announced that due to the COVID-19 pandemic, the airline would be laying off 3000 staff, cutting its fleet size to 35 and sending Branson’s beloved Boeing 747-400s to the boneyard. In August of 2020, Virgin Atlantic filed for Chapter 15 bankruptcy in New York as part of a refinancing plan. The Virgin Atlantic website is still up, but I tried to book a couple of sample flights (LAX to LON and HKG to LON) going out until September, but could not.
Despite talk of re-opening, COVID-19 damage is endemic throughout the travel industry. Airlines are now saying that 2021 could be another lost summer for European travel, as borders remain closed.
Against this background, Branson has been surprisingly consistent about what he would do to save his companies. Although SPCE reportedly plunged on April 15 due to Branson’s share sales, back in June of 2020, Sir Richard said “he will sell a stake in his Virgin Galactic space tourism business to support his other businesses, including Virgin Atlantic.” Branson even used his luxury Necker Island as collateral to help secure a government loan.
So after the investment of hundreds of millions of dollars, will Virgin Galactic be able to safely send tourists into space and ultimately make a profit? For SPCE, that may be the final frontier.