Why Wheels Up Experience Stock Is Sinking Today
Key Points
Wheels Up shares will split 20-for-1 on April 27.
While this doesn't technically change the company's operations, it's usually not an encouraging sign.
The company's ongoing transformation and quest for profitability are more important than the reverse stock split.
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Shares of on-demand private jet provider Wheels Up Experience (NYSE: UP) are down 25% today as of market 3:45 p.m. ET after the company announced it would be undergoing a 1-for-20 reverse stock split. The shares will begin trading on a split-adjusted basis on April 27, 2026. This split should help Wheels Up regain compliance with the NYSE's listing standards and maintain eligibility for inclusion in the Russell 3000.
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While a reverse stock split technically changes nothing about a company's actual operations -- the "pizza" remains the same size, but with differently sized slices -- they aren't a great sign for investors. Usually, a reverse stock split signals danger as it is tied to poor price performance and the potential for institutional selling, as many funds won't hold stocks below $1. A reverse stock split also suggests there may not be an immediate catalyst for the stock to rebound on its own. Already down 99.6% from its 2020 IPO, Wheels Up hasn't done enough to reassure investors that they shouldn't worry about the upcoming stock split, which helps explain today's negative reaction.
To be fair to Wheels Up, however, I like the company's expanded partnership with Delta Air Lines (NYSE: DAL) to build a hybrid private and commercial jet offering for its customers. Delta also owns nearly 40% of Wheels Up, so it remains incentivized to make the partnership work. I also think Wheels Up's shift to a premium membership makes a lot of sense, as higher-margin bookings could help the company finally reach profitability.
However, as this shift takes place, the company saw sales dip 10% in its latest quarter, due to the intentional winding down of its lower-margin legacy memberships and group charter sales. That said, Wheels Up's net profit margin improved from -42% in Q4 last year to -16% this year, so if it keeps trending in this direction, a turnaround could be in store. Ultimately, Wheels Up is an uber-high-risk stock that Foolish investors should probably avoid until it can prove capable of profitability.
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Josh Kohn-Lindquist has no position in any of the stocks mentioned. The Motley Fool recommends Delta Air Lines. The Motley Fool has a disclosure policy.
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