Virgin Galactic is pinning a lot of its future on commercial spaceflight. Some have called this objective a visionary one, while others have criticized it as being unworkable. Despite the multitude of opinions, Richard Branson's venture seems set to continue operating. However, the company's stock has taken a significant beating over the past few weeks, putting a bit of a strain on its financial viability.
Earlier this month, shares of Virgin Galactic took a significant dive after the Ark Invest space exploration exchange-traded fund (ETF) sold 275,204 of its shares in the company. The sale accounted for over half of Ark Invest's stake in Virgin Galactic, marking another warning for the company's stock. It cut off Ark Invest's stake from 585,675 to 315,781.
At the same time, Virgin Galactic moved from being the 19th largest company in Ark Invest's portfolio to being the 33rd. It now makes up just a little over 1 percent of Ark Invest's portfolio value. Ark Invest had been Virgin Galactic's biggest shareholder. The company offloading shares - especially in such a volume - is never a good sign for anyone.
Beyond its space ETF, Ark Invest also sold 315,600 shares in Virgin Galactic from its ARLQ "autonomous technology and robotics" fund. This means that Ark only holds about 1.76 million Virgin Galactic shares, worth a little over $45 million.
The news immediately sent Virgin Galactic's stock tumbling. Ark Invest is a major player, despite only beginning its trading at the end of March. Many believed that Virgin would be a major holding for Ark Invest, considering the firm's plans for the future. However, while Ark Invest still has a stake in aerospace contractors like Boeing and Lockheed Martin, its selloff of Virgin Galactic stock is a red flag.
The Ark Invest selloff is only the third major share sale that is hitting Virgin Galactic this year. In March, Chamath Palihapitiya, the billionaire investor who serves as the company's chairman, announced that he had sold his remaining personal stake. Palihapitiya helped Virgin Galactic go public via a SPAC deal in 2019 and has been at the helm of the company's board since then. He confirmed the sale of 6.2 million shares, worth about $213 million at the time.
While Palihapitiya still owns about 15.8 million shares via his Social Capital Hedosophia Holdings, his personal stake is now down to zero. He explained that he plans to use the money he made to fund investments focused on combating climate change.
The news sent Virgin Galactic's shares tumbling 9.9 percent on the day - and 25 percent for that week.
Then, the big news dropped when Richard Branson, the company's own founder, sold over $150 million worth of stock in mid-April. The selloff followed a $500 million sale that Branson orchestrated last year, with Virgin Group claiming that the billionaire plans to use the funds raised to support his portfolio of leisure and hospitality businesses.
All in all, Virgin's stock has erased its entire 2021 gains. The firm's stock currently trades at $22.54, a long way from its 2021 high of $62.
Optimism Despite Staggering Losses
Despite the financial constraints, Virgin Galactic seems like a top stock to purchase - especially now. The company is making operational fleet developments, confirming in a conference call earlier this year that it planned to roll out its SpaceShip Three soon. Among other things, SpaceShip Three will be a base for Virgin Galactic to launch several other vehicles in the future.
Virgin already suffered setbacks in the development of several of its vehicles as well. In a fourth-quarter earnings call, the company reported financial results for 2020, confirming that it had delayed its next test flight for the SpaceShip Two vehicle. The delay was necessary to handle technical problems, per a report from SpaceNews. With May set as the new test date, Virgin doesn't seem ready to launch space tourist flights until 2022.
Company officials explained that the vehicle required technical changes following an aborted suborbital test flight. The abortion was caused by electromagnetic interference, which forced a flight computer to reboot at the same time the rocket's engine ignited. While the vehicle landed safely and the crew was safe, Virgin acknowledged the need for additional work on the overall system.
It's unclear how Virgin Galactic plans to chart a course for the future. The company faces criticism on all fronts, from investors who seem unsure about when they will be able to take space tourism expeditions to analysts who believe the company is way over its head in its mission to bring people to space. However, Richard Branson and his crew remain committed to the task and their objective to democratize space travel.
In a world where companies like SpaceX and more are launching satellites and vehicles into space, Virgin Galactic has yet to provide a vehicle that can operate at that scale. Still, 2021 seems to be a pivotal year for the company regarding operational and financial viability.