What happened
Virgin Galactic Holdings (SPCE 3.15%) isn't getting the boost it likely hoped for from sending its founder into space. The shares lost more than 10% on Monday and were down again on Tuesday as investors digested what happened over the weekend and what the company has done since. As of 12:23 p.m. EDT, the stock was down 3%.
So what
On Sunday, Richard Branson blasted into space aboard the Virgin Galactic Unity spacecraft, officially marking the launch of the space tourism market. Virgin Galactic shares had rocketed higher in anticipation, but the reaction since has been muted.
The company followed the flight with news it would sell about $500 million worth of additional shares. Secondary offerings typically have a negative impact on stocks because they add to the total float, meaning every investor has a slightly smaller piece of the overall pie. But in this case the $500 million will have relatively little impact on a company with a $10 billion market capitalization, and given Virgin Galactic's need to invest for growth, bringing the extra capital in likely makes sense.
Image source: Virgin Galactic.
Beyond the secondary offering, the stock appears to be moving more on questions about whether the launch lived up to the hype. Branson had promised a "major announcement" following his trip to space, which some investors had expected to be an update on total reservations or a new initiative. But the announcement was nothing more than a sweepstakes to send two people up to space on a future flight.
Moreover, the cost of a ticket at more than $250,000 apiece and the environmental impact of space tourism has caused some post-launch backlash. For example, a CNN editorial called Branson's trip a "disappointing space jaunt" and railed against what it called a high-cost vanity project. Branson's expertise is in marketing and investors had likely expected the big event to generate significant positive publicity for Virgin Galactic, but so far, the results look mixed at best.
Now what
Sunday's launch was a major milestone in Virgin Galactic's effort to prove that its system works. But the big-picture questions about the company, including how much demand there is for a six-figure ticket to the edge of space and whether that demand can cover the high costs involved in the enterprise, remain unanswered.
In a way the post-launch reaction is a case of "buy the rumor, sell the news" where a stock rallies on anticipation of a big event and then experiences a sell-off once it happens. The turbulence should be of little concern to long-term holders, but the questions about the viability of the business are worth monitoring as Virgin Galactic completes its testing and rolls out regular service early next year.
For those still excited about the opportunity, it is best to limit this stock to a small portion of a well-diversified portfolio.
