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(Bloomberg) – Richard Branson’s rocket ride last weekend went off without a hitch, but the billionaire’s space tourism company still has a way to go to convince investors it’s more than an idea lunar.
Shares of Virgin Galactic Holdings Inc. have fallen every trading day since space travel, erasing all gains since early June in the stock’s worst week on record. As of Friday, it was down 39% for the five-day period.
While the successful launch was great marketing for space tourism, on Wall Street enthusiasm quickly waned when Virgin Galactic followed it up with plans for a dilutive capital raise. This sparked a larger overhaul of the timeline of Branson’s splashing first trip to a viable business based on potential astronauts willing to pay a quarter of a million dollars to travel 53 miles above earth.
“Now that Virgin has proven that it can do what it set out to do, some of the speculative spark has worn off,” said Mario Ferro, analyst at investment research firm ValueLine.
The company’s plan to issue up to $ 500 million in new shares would only modestly dilute its current float, but given that it has also sold shares worth over $ 450 million l ‘Last year, there are fears that more stock offerings will follow, Ferro said. The company has not yet recorded any income.
Investors were also disappointed when the company failed to follow Branson’s journey with an update on operating plans, including exactly how much future tickets will cost or when sales resume.
“There has certainly been some disappointment among investors that there has been no more significant announcement, regarding future revenues or opportunities, to support growth,” said Canaccord Genuity analyst Ken Herbert.
Representatives for Virgin Galactic declined to comment on the stock rout this week.
The company’s ultimate goal – as stated earlier – is to make 400 trips per year from multiple spaceports it plans to build, generating $ 1 billion in annual revenue for each. According to analysts polled by Bloomberg, Wall Street expects the company to make a profit in 2024, with annual revenue of $ 385 million.
“Over time, one would assume that economies of scale will be realized, making the experience more accessible. But it’s probably a long way off, ”said Ferro of ValueLine.
Swings of volatility
Meanwhile, the allure of a futuristic business plan, coupled with Branson’s charisma, ensures that the company has attracted a fan base among retail investors. The stock has risen more than 150% since October 2019, when it merged with a blank check entity to enter public markets. It’s a double-edged sword, however, as a large retail investor base tends to come with volatility.
The extreme volatility seen this week may not last, but the stock should remain significantly more active than the broader market. After hitting a recent high of 194 on July 8, Virgin Galactic’s implied volatility fell to 115, a hair’s breadth from its six-month average of 117. That number compares to a projected price change of 52 for Tesla – another growth action which is often subject to sudden movements.
The latest planned stock offering is likely to cause more swings as the company sells directly to retail investors, a process that has been in vogue recently with several so-called memes stocks like AMC Entertainment Holdings Inc. and GameStop Corp.
About 23% of Virgin Galactic’s outstanding shares are held by institutional shareholders, a number that contrasts with 57% for Tesla Inc., 63% for Amazon.com Inc. and 79% for Walmart Inc. These figures point to more than volatility until the money is stickier. of institutional investors buy into space travel.
“Over time, the company has to find a way to attract more institutional investors and longer term money, and as the business model matures this will start to happen,” said Herbert of Canaccord.
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