Archer Aviation (ACHR 4.54%) stock is seeing big sell-offs in Wednesday's trading. The flying electric vehicle company's share price was down 8.6% as of 11:15 a.m. ET.
NYSE: ACHR
Key Data Points
Before the market opened this morning, Archer Aviation submitted a filing to the Securities and Exchange Commission (SEC) indicating that it plans to create and sell new stock. The company has entered into an agreement to sell up to $70 million worth of new Class A common stock.
Archer is selling stock to raise funding
Archer Aviation's recent stock offering filing has raised concerns about shareholder dilution. As the company issues more stock, the stake that previously existing shareholders own becomes smaller.
In other words, the pie is being cut into a larger number of pieces -- and the pieces shrink in size in order to accommodate the change. On the other hand, selling stock provides the company with fresh capital that can be used to grow its business.
In the third quarter, Archer Aviation posted a net loss of $115.3 million on zero revenue. Meanwhile, the company closed out the quarter with cash and equivalents totaling roughly $501.7 million. Given the rate at which Archer is going through cash in order to develop and scale its business, it's not surprising that the company is moving to sell new shares in order to secure additional funding.
What comes next for Archer?
Even without the recently announced stock offering, the company has already increased its outstanding share count by roughly 48% since going public through a merger with a special purpose acquisition company (SPAC) in 2021. Given that the business is still in a pre-revenue state and posting significant losses, it's likely that it will continue to offer new stock in order to raise cash. But the company could soon make the transition to generating significant revenue.
Archer appears to be making significant progress toward commercialization, and has recently scored some significant contract wins in the United Arab Emirates and Japan. In particular, its contract to sell its Midnight flying vehicles to Japan Airlines and Sumitomo's joint venture company could wind up producing as much as $500 million in revenue.
Archer Aviation is a pioneering player in an emerging product category, but its outlook remains speculative. If the company establishes itself as a long-term winner in the flying taxi space, its share price is poised to soar above current levels. But investors should keep in mind that success on that front isn't guaranteed, and there could be substantial bumps in the road even if the business winds up being successful over the long haul.
