Virgin Orbit (NASDAQ: VORB) stock price cratered by over 31% in extended hours after the company neared the verge of bankruptcy. The firm has furloughed employees and started raising capital to save its business. As this crisis mounts, Virgin Galactic (NYSE: SPCE) stock is also on edge, having crashed by more than 13% in the past 5 days and 31% in the past 12 months.
Virgin Orbit, the sister company of Virgin Galactic, is on the verge of collapse unless the management raises capital as soon as possible. The firm paused its operations and furloughed staff as it ran out of cash. With the current market conditions, and after its recent launch failures, it will be difficult for the company to raise the much-needed cash.
Virgin Orbit has become a cash-burning machine. Its most recent results showed that it lost $149 million in the first nine months of 2022. Just in December, the company managed to raise $20 million through a convertible bond sale. This means that it has already burnt through that cash as well. The company’s spokesperson wrote that:
“On the ops side our investigation is nearly complete and our next production rocket with the needed modification incorporated is in final stages of integration and test,”
All this brings focus to Virgin Galactic, its bigger sister. Virgin Galactic has been doing much better as it gears towards its commercial spaceflight service in the second quarter of this year. Most importantly, the company’s books show that it is in a better position as funding for technology and loss-making companies dry.
Virgin Galactic’s balance sheet shows that it ended the fourth quarter with $909 million in cash and short-term investments. Most of these funds came from sale of shares. However, its debt load has also grown rapidly to over $415 million. It spent $12.1 million in interest expenses in the most recent quarter.
Also, its costs are still elevated. Its net loss jumped to $500 million in the fourth quarter while its operating expenses jumped to $502 million. Free cash flow came in at minus $135 million.
Therefore, I believe that Virgin Galactic is a high-risk company as its cash pile dwindles. There are also concerns about its margins per flight.
SPCE stock chart by TradingView
The collapse of SVB and Signature Bank means that the financial sector will tighten in the coming months. That will be punishing for high-risk companies like Virgin Galactic, which will need to raise capital.
The 4H chart shows that the SPCE stock price has been under intense pressure in the past few days. This pressure emerged as it formed a double-top pattern at $6.45 level. It has formed a descending channel that is shown in blue and moved below the 25-day and 50-day moving averages. The MACD has moved below the neutral point.
Therefore, I suspect that the stock will continue falling as sellers target the next key support level at $4. The collapse of Virgin Orbit will make the situation worse. The stop-loss for this trade will be at $5.65.
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