Please ensure Javascript is enabled for purposes of website accessibility

Dubious Strategic Moves Hit These 2 Stocks Hard Thursday

By Dan Caplinger – Jan 13, 2022 at 2:49PM

Key Points

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The broader market fell sharply as well.

Wall Street suffered a wash-out on Thursday, giving up early gains to fall sharply by the close. Investors seem nervous about the future course of the economy, and tech stocks in particular have taken big hits. That's a big part of why the Nasdaq Composite (^IXIC) was the biggest loser by far among major indexes, while losses for the Dow Jones Industrial Average (^DJI) were much more measured and the S&P 500 (^GSPC 0.57%) split the difference.


Daily Percentage Change

Daily Point Change




S&P 500






Data source: Yahoo! Finance.

Many stocks saw declines of more than 10%, but a couple stood out for making questionable moves that investors didn't like. Virgin Galactic Holdings (SPCE 0.49%) and Elastic (ESTC -0.12%) didn't drop for the same reasons, but neither one made shareholders feel particularly confident about the future. Below, you'll find more on what happened and why the stocks reacted the way they did.

Virgin Galactic wants cash at the worst time

Shares of Virgin Galactic dropped almost 19% on Thursday. The space tourism business has seen its stock fall from above $60 per share into the low teens, but only now did it decide that it was a good time to raise capital in a way that could dilute shareholders.

Virgin Galactic Unity spaceplane at ignition.

Image source: Virgin Galactic.

Virgin Galactic proposed an offering of convertible senior notes. The company is looking to raise $425 million by issuing debt that matures in five years. Noteholders will be able to convert the debt at will during the last three months of the term of the notes, and Virgin Galactic will be able to redeem the notes at its election if the price of its stock rises to more than 130% of the conversion price for a set period of time.

The final conversion price and interest rate on the debt will be determined through a pricing process, but investors didn't wait to sell off the stock. It's inevitable that the terms that Virgin Galactic will be able to get now will be far inferior to what it could've gotten throughout 2021, when the stock traded at considerably higher levels.

There's no excuse for Virgin Galactic failing to anticipate its cash needs. By failing to take advantage of better conditions and waiting until it apparently had no other choice, the space tourism company hurt its own shareholders.

Elastic's founder takes a step down

Meanwhile, shares of Elastic fell almost 12%. The company got swept up in the downdraft that hurt a lot of tech stocks on Thursday, but shareholders also shook their heads at a strategic move that didn't make sense to them.

Elastic announced late Wednesday that CEO  and co-founder Shay Banon would step down from his leadership role in the company, giving up both the chief executive job and his position as chair of the board of directors. Instead, Banon will return to his former position as chief technology officer, and he'll remain on the Elastic board as a regular member.

Taking Banon's place is Ash Kulkarni, who joined Elastic as chief product officer a year ago. Kulkarni has focused on the Elastic cloud segment, using his past experience at several other tech companies to guide his vision for his current employer. Meanwhile, Elastic worldwide field operations president Paul Appleby is leaving the company.

Banon isn't the first tech founder to take a step back from management, and it's likely he sees CTO as a position that plays better to his strengths. Nevertheless, the decision wasn't particularly well-timed, and shareholders don't like uncertainty. That's likely why the stock fell so much more than most other tech stocks on Thursday.

Dan Caplinger owns Virgin Galactic Holdings Inc. The Motley Fool owns and recommends Elastic. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.