Sunday, November 16, 2014

Get Paid: Secondary Public Offerings

In the news recently, some big stock movers announced a Secondary Public Offering (SPO). An SPO is a secondary chance for companies to offer the public stock.

In the stock market, the price of a stock is based on what the public values a company per share. This is based on the supply and demand of the float, or the shares available for purchase. Since there is a limited number of shares that can be purchased on a given day, the price of the share will increase as more people buy the stock and the number of floating shares decrease.

There are two ways, that I know of, to increase the float. One way is by a stock split, which involves decreasing the stock price and adding a multiple number of shares. The other way, which I learned of recently, is the SPO. When a company announces an SPO, this increases the number of shares without decreasing the share price by a multiple.

However, the price of the stock will decrease when a company does an SPO. This is because the number of floating shares increases, reducing the demand. Why then would a company do this then? Why would they not just do a stock split?

To answer both questions, an SPO will increase the number of shares but it also has the benefit of raising capital ($$$). On the other hand, a stock split does not allow a company to raise money. A company may offer an SPO because they feel that there is a large chance that they have the ability to grow quickly and need extra capital to do it. In recent news, companies that have offered SPO's are one's whose stock has performed well.

Some notable companies that have recently announced this secondary public offering GoPro (maker of action cameras), Zoe's Kitchen (Mediterranean restaurant chain), and QTS Realty.
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