GoPro shares were down as much as 5% in premarket trade on Monday after the company filed to sell hundreds of millions of dollars in stock.
In an SEC filing early Monday, GoPro filed an S-1 registering the sale of up to $US800 million worth of stock. Sale of the stock is no certainty, and the filing doesn’t obligate GoPro to sell this stock within a certain timeframe, but the company now has the right to issue up to $US800 million in stock into the market.
The simple reason that stocks tend to fall when companies announce that they will issue shares is that the offering “dilutes the float.”
By offering more stock into the market, the denominator by which the company’s earnings is divided increases, thus the earnings per share declines. So if you’re valuing a stock based on its multiple to the company’s earnings, more stock equals less earnings and therefore warrants a lower share price.
GoPro’s filing on Monday doesn’t give too many details about when the company might offer shares, though the company did say that it would not receive any proceeds from the offering, and so it could be related to the lock-up expiration following the company’s IPO.
The lock-up period is a length of time, typically 180 days, following a company’s IPO that prevents certain company insiders from selling their shares into the market.
In premarket trade Monday, GoPro shares were sitting near $US75; shares priced at $US24 ahead of GoPro’s IPO.
Business Insider Emails & Alerts
Site highlights each day to your inbox.