Virgin Galactic stock nosedived on Monday, just a day after the company’s 70-year-old founder Richard Branson successfully flew in a VSS Unity vehicle to the edge of space. Shares tumbled 17 percent to $40 at Monday’s close, wiping off more than $1 billion in market capitalization. It was Virgin’s worst single-day loss since the stock’s pandemic low in March 2020.
Several factors are at play. First of all, Virgin Galactic stock had gone way too hot in the days leading up to Branson’s flight. In June, shares jumped over 90 percent, leading to several analyst downgrades. Alembic Global’s Pete Skibitski, for example, lowered his rating on the stock on June 30, warning that valuation had “stretched to excess levels.”
A more direct trigger to Monday’s sell-off, though, was Virgin’s announcement that it could sell as much as $500 million in new stock. The company said it had struck an agreement with Credit Suisse, Morgan Stanley and Goldman Sachs to issue the new shares from time to time.
Additional stock issuance often leads to a sharp drop in a company’s share price because new equity increases the number of outstanding shares, thus diluting the value of stock held by existing shareholders. The larger the issuance, the greater the impact on existing stock. Virgin’s new equity sale would account for about 4 percent of its total outstanding shares, according to a Reuters calculation.
Yet, despite the dramatic sell-off, Virgin Galactic’s stock price is still more than double what it was a year ago. And its upcoming commercial rollout is gaining more traction.
In a preflight interview over the weekend, Branson hinted to London’s Sunday Times that Elon Musk might be up for a flight on a Virgin Galactic spaceplane. “Elon’s a friend, and maybe I’ll travel on one of his ships one day,” Branson told the newspaper.
A Virgin Galactic spokesperson confirmed to The Wall Street Journal that Musk had bought a ticket on a future Virgin Galactic flight. It’s unclear exactly when he will fly. Virgin has more than 600 people on the waitlist. The company has two more test flights in the months ahead before beginning regular commercial operations in 2022.
Branson’s Sunday flight “is symbolically important for building consumer confidence in and demand for space tourism,” AB Bernstein analyst Douglas Harned said in a note to clients, CNBC reported Tuesday. “A successful test flight by Blue Origin including founder Jeff Bezos, scheduled for July 20, should generate further interest in the industry, which would benefit both companies.”