Investors fret that institutional holders might soon be selling.

Key Points

  • Wheels Up went public earlier this summer, and now lockups attached to a private placement are set to expire.
  • Expirations can put a stock under pressure by adding to the number of sellers.
  • Long-term holders should note: Nothing has changed about the business.

What happened

Private aviation membership service Wheels Up Experience (NYSE:UP) is losing altitude on Wednesday, weighed down by fears that institutional holders might look to liquidate some of their shares. The stock opened down more than 10% on heavy volume.

So what

Wheels Up, a 7-year-old provider of private jet service to members, went public earlier this year via a merger with a special purpose acquisition company (SPAC). The deal included about $500 million in added investment from a group that included T. Rowe Price, Fidelity, Franklin Advisors, Durable Capital, HG Vora Capital Management, Third Point, Luxor Capital, and Monashee.


Image source: Getty Images.

Those investors were initially restricted against selling the shares they bought, but the lockup provisions are set to expire, freeing them to do what they want.

Given that Wheels Up has a relatively small float (the number of shares available for trading), investors are worried that a rush to sell will put downward pressure on the share price. On Wednesday, more than 1.6 million Wheels Up shares were traded in the first half-hour. Thats more than the companys average daily volume of 1.1 million shares.

The actual Wheels Up business appears to be on course. Earlier this month, it reported its first earnings as a public company, growing revenue by 113% to $285.6 million while only slightly increasing its net loss to $29 million.

Now what

Lockup expirations and the panic they tend to cause are unfortunate facts of life for investors dabbling in small companies, and in particular SPAC deals. But long-term holders would do well to ignore the noise.

Its worth noting that just because investors can sell, there is nothing to say they will. Since the share price is well below the $10 SPAC offering price, there isnt a lot of reason to head for the exits at this moment.

Wheels Up is a small company in a competitive market, and it remains a speculative investment that should be limited to a small part of a diversified portfolio. But investors would be wise to focus on how the business is doing and ride out this near-term stock-related turbulence.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.


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