On May 1, Virgin Galactic (NYSE:SPCE) filed an S-1 shelf registration with the U.S. Securities and Exchange Commission to allow the future sale of 150.5 million shares of SPCE stock held by certain insiders.
On the surface, the idea of insiders such as Richard Branson contemplating sales of SPCE stock seems pretty ominous.
While there are many things to consider before investing in Virgin Galactic, the sale of shares by insiders is not one of them. Here’s why.
Insiders Sell for Lots of Reasons
I don’t know about you, but most Americans these days know somebody who is struggling to stay afloat as a result of the novel coronavirus.
I’m not suggesting that Branson or Chamath Palihapitiya — who together control almost all shares available for sale — are struggling. Still, like most people, they have obligations to meet. Share sales are often the most expedient way to come up with cash in a hurry.
One of the selling stockholders is Boeing HorizonX Ventures. It owns 1.9 million shares. Boeing (NYSE:BA) solely owns those shares. I have no idea if it wants to sell, but given that it’s borrowed $25 billion in recent weeks to survive the pandemic, it probably wouldn’t look too good holding a vanity investment such as Virgin Galactic.
That said, Boeing invested last October as a way to get to the front of the line when it comes to future space travel. From Boeing HorizonX Ventures’ Brian Schettler at the time of its $20 million investment:
“Boeing’s strategic investment facilitates our effort to drive the commercialization of space and broaden consumer access to safe, efficient, and environmentally responsible new forms of transportation.”
Either way, giving Boeing the option makes sense.
Why Did Richard Branson Take SPCE Stock Public?
The Motley Fool’s Rich Smith recently explained that Virgin Galactic’s stock price dropped 11% because investors were unimpressed with the revelation that insiders intend to sell as much as 72% of the company’s stock in the future.
Yes, it seems like a strange proposition. After all, wasn’t it Branson that launched Virgin Galactic in 2004 with the grand idea of operating commercial space flights?
“I hope, with the launch of Virgin Galactic and the building of our fleet of spacecraft, that one day children around the world will wonder why we ever thought that space travel was a dream we read about in books,” Branson said in 2004.
It’s true that Branson is the visionary behind Virgin Galactic. But it’s also true that many of Virgin’s 500 companies are smaller investments using others’ money to grow.
In 2012, The Guardian published an article that reminded readers that few of Branson’s diverse array of businesses are wholly owned by the billionaire. In many ways, he’s the United Kingdom’s version of President Donald Trump. He often licenses the Virgin brand to others, while owning very little of those businesses himself.
For example, in 2014, Virgin Media was sold to Liberty Global (NASDAQ:LBTYA, NASDAQ:LBTYB, NASDAQ:LBTYK) for $24 billion. Branson had a small stake in the company and was paid $160,440 a year to promote Virgin Media’s services. Also, the Virgin group of companies had several promotional arrangements with Virgin Media.
The Bottom Line on Virgin Galactic
Richard Branson is said to be worth $4.4 billion. He currently is in a battle to save Virgin Atlantic, the airline he started in 1984. It is also one of the Virgin Group’s most significant investments. It owns 51% of the airline with Delta Air Lines (NYSE:DAL) owning the rest.
If Branson and Virgin Group owned 100% of all 500 companies it’s started, he would likely be one of the world’s wealthiest persons.
It wouldn’t have made sense for Virgin Galactic to go public if Branson and the Virgin Group intended to hang on to control of the company. The whole idea was to bring more investors to the table.
With an operating loss of $213 million in 2019 on $3.8 million in revenue, you can be sure that Virgin Galactic’s share count in five years won’t be just 210 million. It will likely be in the billions.
So, the “potential” sale of 150 million existing shares in the long run is much ado about nothing.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.