Wednesday, July 17, 2024

Even Virgin Galactic Loyalists Are Starting to Lose Faith

(Bloomberg) — After braving years of ups and downs for Virgin Galactic Holdings Inc., even its most loyal investors are losing faith.

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The final straw for many was a 1-for-20 reverse stock split last month intended to get the shares back above $1 to comply with New York Stock Exchange listing requirements. The stock has already lost much of that artificially created value, leaving investors with fewer shares that are worth far less.

“It’s the most volatile stock in my portfolio,” said Neil Ryan, a retail investor in Derbyshire, UK. “It’s a toss of a coin whether this is going to go bust or not.”

Shares in Virgin Galactic pared early gains Wednesday to fall 0.4% at 11:25 a.m. in New York. The stock is down roughly 84% for the year.

Individual investors own slightly more than half of all Virgin Galactic shares. Many told Bloomberg they bought the stock because they believed in space tourism. But delays in launching trips and high cash burn have left them to question whether the company is sustainable.

Virgin Galactic was the first space-tourism business to go public when it debuted in 2019. At that time, the company had about 700 people ready to pay at least $250,000 for a 90-minute flight to see the curvature of the Earth.

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In 2021, Virgin Galactic restated its 2020 results over accounting issues. Chamath Palihapitiya, who helped it to go public, sold about $213 million of his shares in 2021 and resigned as chairman in 2022. Richard Branson, Virgin Galactic’s founder, also sold about $300 million in 2021. And launch delays piled up — Virgin Galactic didn’t carry its first paying customers until 2023.

Flights Paused

Longtime shareholders knew that the firm had paused tourism flights in June to focus on building its next-generation Delta ships. They are counting on the new vessels’ launch in 2026 to boost the stock.

Oliver Chen and other TD Cowen analysts see reasons for optimism. They wrote last month that frequent flights of Virgin Galactic’s Delta with six passenger seats could clear the backlog of about 800 existing ticket holders in about a year. This would make way for futures sales that will now be $600,000 per person. And the space tourism firm still only faces competition from Jeff Bezos’ Blue Origin, which has yet to announce pricing for tourist flights.

In May, it appeared that Virgin Galactic investors’ faith was being rewarded. The company’s shares jumped along with other meme stocks after Keith Gill, who drove the first meme mania in 2021, returned to social media hinting that he was back in the game.

Some Virgin Galactic traders “thought the craze was going to keep going even higher,” said Dave Graham, a retail investor in Toronto who discusses space stocks on his YouTube channel.

It didn’t, and shares again began to fall toward $1. If it remained below that price, it risked delisting by the New York Stock Exchange. On June 12, Virgin Galactic’s board, which had been mulling a reverse stock split of between 1-for-2 and 1-for-20, announced one at the top end of the range. Shares sank on the news.

Community ‘Despondent’

“Certain retail investors have lost more than they could afford,” said Ryan, the UK investor who also has an investing YouTube channel. People who once posted frequent investment updates have been quieter, he said. “The community in general has gotten quite despondent.”

When asked for Virgin Galactic’s strategy on the reverse split, a company spokesperson referred to the firm’s Jun. 12 proxy statement, which detailed the importance of maintaining its New York Stock Exchange listing for liquidity and future capital raises.

Ryan believes in the future of space tourism, but he is not sure Virgin Galactic will survive to achieve it. “This business is just one disaster from completely disappearing,” he said. “Hopefully not.”

Others on Wall Street have doubts the company has enough cash to survive. At the end of the first quarter in 2024, Virgin Galactic reported $195 million in cash and cash equivalents, which don’t include short-term investments that can be liquidated quickly. This was down from $416 million in the same period a year ago.

The Virgin Galactic spokesperson pointed to the company’s earnings call in May, where Chief Financial Officer Doug Ahrens said the balance sheet remains strong, with $867 million in cash, cash equivalents and marketable securities. And Chief Executive Officer Michael Colglazier said he expects a positive operating cash flow after two of the Delta ships launch.

‘No Real News’

Lee Webb, a photographer in Worcestershire, UK, who runs a Facebook group for Virgin Galactic investors, has been an optimist for years. He saw Branson’s share sale in 2021 as “a vote of confidence” that suggested the company was in a good place and needed less of his input.

Yet he has concerns now. “Shutting down for two years with no real news of what’s going on behind the scenes — it doesn’t sit well with me,” Webb said.

“I’m willing to ride it out because I hope that someone deep down inside the company actually knows what they are doing,” he added.

Travis Hoium, a retail investor in the Minneapolis area, watched a Virgin Galactic launch in January. He sees himself as part of a close band that includes past travelers on Virgin Galactic’s 12 tourist flights and those waiting for future rides. “It was much more of a community than I realized,” he said.

Hoium, who put about 1.5% of his portfolio in Virgin Galactic last year, knows his investment could grow exponentially — or flatline. But he’s holding on for now.

“If we’re not taking risk then what are we doing?” he asked.

Andy Shovel, co-founder of plant-based protein company This in London, owned about $450,000 in Virgin Galactic shares in 2023. By mid-June, these were worth about $60,000.

“I try not to think about it,” he said.

–With assistance from Matt Turner.

(Updates with share price in fourth paragraph and more details on Virgin’s finances in the 16th paragraph.)

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