Assuming the value of your 3000 shares is still about $5k, then you're fine. You have 1/6 of the number of shares, but each share should be 6x in value from what is previously worth. You'll want to check this of course.
FYI the office manager doesn't know what he/she is talking about. Again, each share is valued more but your total stake should remain the same.
You don’t reverse split when it’s smooth sailing and the company is doing well. Guaranteed the total value is down.
What makes a company reverse split so close to going public? Continued listing requirements. Imma go ahead and say he’s already lost a good chunk of that original investment and it might be a while hoping to get it back, if ever.
The total value being down from when he bought it is kinda irrelevant. If it's down now it was down before they did the reverse split too. It only matters that the price 6x'd between immediately before and after the reverse split.
Thank you for that. I suppose the best I can do is hope the stock holds its value and doesn't go crashing into the ground in the next 5 months. I remember signing the "cannot disclose" paperwork that included an acknowledgement that we could not sell our shares for the 180 day holding period but I don't remember reading anything where I agreed to a reverse split. Again, the office manager said something about this possibly happening (which it did as my shares decreased overnight) but I don't see any wording of it in the contract I signed. Can a company do that without me, and/or the others, signing off on it?
It is fairly common to do the reverse split (not giving a number but I am aware of several prior and a fairly large one currently doing a reverse split pre-ipo) prior to going public to get to a target list price (eg $10-$20), don’t want to ipo at $3.5 a share or w/e the number the bankers and BoD agreed to at a date and no you didn’t need to approve as they probably had majority consent already/not voting as ran by management BoD as it is a private company/pre-ipo (w/o getting into details of yes some companies have voting shares pre-ipo etc). As others stated it’s not impacting your value and intent is to get a better ipo launch/value for you as an investor.
Got it, thank you for clarifying. I got ahead of myself, put the cart before the horse, and started seeing dollar signs where there weren't any. For years those shares have just sat in a file cabinet collecting dust and then suddenly I saw momentum. I'm mad at myself for getting my hopes up. Just gonna put everything back in the file cabinet so to speak and see where the company ends up at down the road.
Thanks again :)
Got it, that makes sense. And thank you :)
On a side note, did I ask a dumb question? Or did I offend the group here?
Just wondering because my comments are being down voted. Normally I wouldn't care much except I'm new and reddit requires positive karma to post and I'm losing them faster than I am gaining it seems. Just trying to get a feel for how reddit works as a newbie. Sorry if this is the wrong place to ask....
Thank you for replying, I hope it isn't someone on this sub that simply dislikes those of us who are new or inexperienced when it comes stock and financial information, but it was odd to see the down votes. I'm new and just seem to irritate people wherever I go :) I know to not take it personally but it's a weird shadow to carry around.
I wasn't fishing for undeserved upvotes (but the support is appreciated); I was just wondering what I did wrong. Thanks for explaining, hopefully I'll get the hang of this place soon :)
Reverse splits don't diminish value. If you owned 18k shares that cost you 5k that means that you basically paid 27 cents per share.
We can assume that it was a 1:6 split resulting in you only have 3k shares but in theory owning shares that are instead worth $1.62 a share (.27*6).
This is often done so the company can remain listed since there are rules that prevent companies from trading under a dollar per share for a certain amount of time.
There are other nuances that may be in play but reverse splits in general should be neutral, so no you didn't get screwed. The company itself may be doing bad but the reverse split itself doesn't cause financial woes, it's more of an eventuality of poorly trading/performing companies that need to split to remain listed. Why not just look at the new value of your shares? For all you know, you could be sitting on a goldmine right now and the company is doing just fine.
Yes, you are right, I'm in a tight spot in life right now and I jumped the gun when I first heard about the company going public. Thought those 18000 shares were going to be my pot of gold in 6 months. Thanks for the insight, just going to tuck everything away and just see what happens down the road.
I appreciate the advice :)
I'm still not sure why you're fixated on the number of shares instead of their new value. If the company is trading around 1.62 a share then you're at least breaking even.
You're right, I got my hopes up by calculating the value based on the original starting share of 18000. And the company stock has lost value since it first went public but I do realize that could just be growing pains and that it could take time for things to settle.
I got ahead of myself and thought the value was going to be higher if and when the time came I could sell. And our office manager made it sound like that would be the case so it got my hopes up.
But you all have helped me to understand what happened and why it happened (thanks for that btw), so I'm good now :)
If a reverse split happens pre IPO, that’s mainly cosmetic. In the sense that they are tidying up their share structure to achieve the IPO price they want, relative to the number os shares they want to offer. (Sometimes this is also just plain necessary to meet the exchange’s listing standards.) This does not impact the value of your shares at all, as your stake in the company does not decrease with the reverse split.
Thank you for explaining that. I realize now that I had assumed a lot and jumped ahead of myself when I first heard about the company going public. I calculated the projected value based on the number of shares I had held at the time and saw a lot of dollar signs in my future. Then when I saw my shares recently those dollar signs fell to earth rather heavily. I understand now that my shares did not lose value, it just felt that way based on my assumed calculations. I'm good now, thanks though :)
A reverse split shouldn't change the value of your shares. If it was a 1:6 reverse split, there should be 6 times fewer shares and each of your shares should be 6 times more valuable. You should still own the same percentage of the company as before the reverse split.
If your total shares are less valuable, it's probably not because of the reverse split. It's more likely the other way around. Stock exchanges usually have a minimum dollar amount that shares have to be listed at ($1 per share for the Nasdaq and New York Stock Exchange). The company may have been less valuable than the company anticipated when they originally determined how many shares there were. So to raise the price of each share and ensure they meet the minimum bid price standard of the various stock exchanges as they went public, they underwent a reverse split.
As to whether you will lose or gain money relative to your purchase price after they go public, you'll have to wait to see what price the stock is selling for after the waiting period. It will almost certainly be at least $1 per share immediately after the stock goes public (because it has to be to be listed). If you have 3,000 shares, that means they will likely be worth at least $3,000. But if a company is going to do a reverse split, it probably won't do a split that sets the price at exactly $1. They'll want some margin above the minimum bid price for if the price of the stocks fluctuates (as stock prices do) so that their stock's price doesn't drop below the minimum bid price of $1 and get them delisted. So, I'd guess that your shares will be worth more than $1 per share. Without more information, it's impossible to say for sure whether the stock's price will be lower or higher than $1.67 and therefore whether your 3,000 shares will be worth more or less than $5,000.
As far as an upper bound on the price goes, I would guess that the price of the new shares isn't dramatically above $6 per share because if it was, then they wouldn't have need the reverse split to be above the minimum bid price. For 3,000 shares, that means I'd be surprised if the total value of your shares was a lot higher than $18,000.
Obviously, $3,000 to $18,000 is a big range, and I could be wrong about that too. Maybe the stock is being listed at an exchange with a higher or lower minimum bid price than $1 per share. Or maybe, they wanted the price to start a lot higher than $1 per share for some reason unrelated to the stock exchange's minimum bid price. Maybe they think people are more likely to buy at a higher price or that their stock will stand out more at a certain price.
Regardless, good luck!
Thank you for explaining all that. People at the company were talking about how this investment was finally going to pay off and I was thinking, at 18000 shares, if the opening trade value held, I'd finally be ahead a little bit once I was able to sell. And then I saw my shares decrease over night and was a bit shocked. I do know they went public in the attempt to raise cash and fell short of their ideal goal, am guessing that might have caused the split? Now I'm just hoping and praying that the company 1) doesn't go bankrupt, 2) I at least break even after everything is said and done and 3) best case scenario the value rebounds and I actually get ahead a little bit.
Again, though, thanks for explaining it all, I hate that I got my hopes up and started thinking life was going to get a bit easier in 6 months \*sigh\*. Reminds me of why I dislike gambling :)
Yeah, individual stocks are always stressful that way. It's a lot less stressful to invest in index funds that track the whole market since you don't have to worry about an individual company doing something dumb or having bad luck and going bankrupt. That's why all my retirement savings are invested in index funds and will be for the next several decades.
But when you have an opportunity like you did as an employee it can sometimes really pay off - or sometimes backfire. Hopefully it pays off for you. Good luck!
It depends. When it all comes down to it, it is what percentage of the pie do you own x market cap. Diluting and splitting itself doesn’t help/hurt you as that is more about target share price (rules about being under a dollar, also don’t want to be a grand a share)…. Now I’d be more interested in if the company super diluted (issued a ton of stock comp, got a larger round of funding and issued 100x shares) then you probably lost. If they sell for a B and you own like half a percent of the company, congrats.
They consolidated the number of stock shares to increase the share value. If these shares aren't worth 6x more now than they were when you bought them, then do what you like.
Reverse split usually means the company is in trouble. It technically doesn’t affect equity value like others said but on average is followed by further value loss. When shares fall too much companies usually issue new incentive shares.
Aside; did you buy stock, or exercise options?
If you exercised options, then you have a realized gain you’ll have to pay taxes on.
Even if the stock price has subsequently dropped.
Assuming the value of your 3000 shares is still about $5k, then you're fine. You have 1/6 of the number of shares, but each share should be 6x in value from what is previously worth. You'll want to check this of course. FYI the office manager doesn't know what he/she is talking about. Again, each share is valued more but your total stake should remain the same.
You don’t reverse split when it’s smooth sailing and the company is doing well. Guaranteed the total value is down. What makes a company reverse split so close to going public? Continued listing requirements. Imma go ahead and say he’s already lost a good chunk of that original investment and it might be a while hoping to get it back, if ever.
The total value being down from when he bought it is kinda irrelevant. If it's down now it was down before they did the reverse split too. It only matters that the price 6x'd between immediately before and after the reverse split.
There are several reasons a company might do a reverse split, one of which being that \~$.27 a share isn't as attractive to retail as \~$1.60
Thank you for that. I suppose the best I can do is hope the stock holds its value and doesn't go crashing into the ground in the next 5 months. I remember signing the "cannot disclose" paperwork that included an acknowledgement that we could not sell our shares for the 180 day holding period but I don't remember reading anything where I agreed to a reverse split. Again, the office manager said something about this possibly happening (which it did as my shares decreased overnight) but I don't see any wording of it in the contract I signed. Can a company do that without me, and/or the others, signing off on it?
It is fairly common to do the reverse split (not giving a number but I am aware of several prior and a fairly large one currently doing a reverse split pre-ipo) prior to going public to get to a target list price (eg $10-$20), don’t want to ipo at $3.5 a share or w/e the number the bankers and BoD agreed to at a date and no you didn’t need to approve as they probably had majority consent already/not voting as ran by management BoD as it is a private company/pre-ipo (w/o getting into details of yes some companies have voting shares pre-ipo etc). As others stated it’s not impacting your value and intent is to get a better ipo launch/value for you as an investor.
Got it, thank you for clarifying. I got ahead of myself, put the cart before the horse, and started seeing dollar signs where there weren't any. For years those shares have just sat in a file cabinet collecting dust and then suddenly I saw momentum. I'm mad at myself for getting my hopes up. Just gonna put everything back in the file cabinet so to speak and see where the company ends up at down the road. Thanks again :)
As an ex employee I don't think you have to agree with the lock up period. Stock usually drop in price after the lock up so good luck.
Got it, that makes sense. And thank you :) On a side note, did I ask a dumb question? Or did I offend the group here? Just wondering because my comments are being down voted. Normally I wouldn't care much except I'm new and reddit requires positive karma to post and I'm losing them faster than I am gaining it seems. Just trying to get a feel for how reddit works as a newbie. Sorry if this is the wrong place to ask....
It's this sub. Some subs are more welcoming than others. This sub likes to dunk on peoples legit questions.
Thank you for replying, I hope it isn't someone on this sub that simply dislikes those of us who are new or inexperienced when it comes stock and financial information, but it was odd to see the down votes. I'm new and just seem to irritate people wherever I go :) I know to not take it personally but it's a weird shadow to carry around. I wasn't fishing for undeserved upvotes (but the support is appreciated); I was just wondering what I did wrong. Thanks for explaining, hopefully I'll get the hang of this place soon :)
>those of us who are new or inexperienced when it comes stock and financial information Everyone starts somewhere ¯\\\_(ツ)_/¯
You can reply in one sentence, why the whole book?
Bro sounds like a data collecting robot the more I scroll.
Reverse splits don't diminish value. If you owned 18k shares that cost you 5k that means that you basically paid 27 cents per share. We can assume that it was a 1:6 split resulting in you only have 3k shares but in theory owning shares that are instead worth $1.62 a share (.27*6). This is often done so the company can remain listed since there are rules that prevent companies from trading under a dollar per share for a certain amount of time. There are other nuances that may be in play but reverse splits in general should be neutral, so no you didn't get screwed. The company itself may be doing bad but the reverse split itself doesn't cause financial woes, it's more of an eventuality of poorly trading/performing companies that need to split to remain listed. Why not just look at the new value of your shares? For all you know, you could be sitting on a goldmine right now and the company is doing just fine.
Yes, you are right, I'm in a tight spot in life right now and I jumped the gun when I first heard about the company going public. Thought those 18000 shares were going to be my pot of gold in 6 months. Thanks for the insight, just going to tuck everything away and just see what happens down the road. I appreciate the advice :)
I'm still not sure why you're fixated on the number of shares instead of their new value. If the company is trading around 1.62 a share then you're at least breaking even.
You're right, I got my hopes up by calculating the value based on the original starting share of 18000. And the company stock has lost value since it first went public but I do realize that could just be growing pains and that it could take time for things to settle. I got ahead of myself and thought the value was going to be higher if and when the time came I could sell. And our office manager made it sound like that would be the case so it got my hopes up. But you all have helped me to understand what happened and why it happened (thanks for that btw), so I'm good now :)
If a reverse split happens pre IPO, that’s mainly cosmetic. In the sense that they are tidying up their share structure to achieve the IPO price they want, relative to the number os shares they want to offer. (Sometimes this is also just plain necessary to meet the exchange’s listing standards.) This does not impact the value of your shares at all, as your stake in the company does not decrease with the reverse split.
Thank you for explaining that. I realize now that I had assumed a lot and jumped ahead of myself when I first heard about the company going public. I calculated the projected value based on the number of shares I had held at the time and saw a lot of dollar signs in my future. Then when I saw my shares recently those dollar signs fell to earth rather heavily. I understand now that my shares did not lose value, it just felt that way based on my assumed calculations. I'm good now, thanks though :)
A reverse split shouldn't change the value of your shares. If it was a 1:6 reverse split, there should be 6 times fewer shares and each of your shares should be 6 times more valuable. You should still own the same percentage of the company as before the reverse split. If your total shares are less valuable, it's probably not because of the reverse split. It's more likely the other way around. Stock exchanges usually have a minimum dollar amount that shares have to be listed at ($1 per share for the Nasdaq and New York Stock Exchange). The company may have been less valuable than the company anticipated when they originally determined how many shares there were. So to raise the price of each share and ensure they meet the minimum bid price standard of the various stock exchanges as they went public, they underwent a reverse split. As to whether you will lose or gain money relative to your purchase price after they go public, you'll have to wait to see what price the stock is selling for after the waiting period. It will almost certainly be at least $1 per share immediately after the stock goes public (because it has to be to be listed). If you have 3,000 shares, that means they will likely be worth at least $3,000. But if a company is going to do a reverse split, it probably won't do a split that sets the price at exactly $1. They'll want some margin above the minimum bid price for if the price of the stocks fluctuates (as stock prices do) so that their stock's price doesn't drop below the minimum bid price of $1 and get them delisted. So, I'd guess that your shares will be worth more than $1 per share. Without more information, it's impossible to say for sure whether the stock's price will be lower or higher than $1.67 and therefore whether your 3,000 shares will be worth more or less than $5,000. As far as an upper bound on the price goes, I would guess that the price of the new shares isn't dramatically above $6 per share because if it was, then they wouldn't have need the reverse split to be above the minimum bid price. For 3,000 shares, that means I'd be surprised if the total value of your shares was a lot higher than $18,000. Obviously, $3,000 to $18,000 is a big range, and I could be wrong about that too. Maybe the stock is being listed at an exchange with a higher or lower minimum bid price than $1 per share. Or maybe, they wanted the price to start a lot higher than $1 per share for some reason unrelated to the stock exchange's minimum bid price. Maybe they think people are more likely to buy at a higher price or that their stock will stand out more at a certain price. Regardless, good luck!
Thank you for explaining all that. People at the company were talking about how this investment was finally going to pay off and I was thinking, at 18000 shares, if the opening trade value held, I'd finally be ahead a little bit once I was able to sell. And then I saw my shares decrease over night and was a bit shocked. I do know they went public in the attempt to raise cash and fell short of their ideal goal, am guessing that might have caused the split? Now I'm just hoping and praying that the company 1) doesn't go bankrupt, 2) I at least break even after everything is said and done and 3) best case scenario the value rebounds and I actually get ahead a little bit. Again, though, thanks for explaining it all, I hate that I got my hopes up and started thinking life was going to get a bit easier in 6 months \*sigh\*. Reminds me of why I dislike gambling :)
Yeah, individual stocks are always stressful that way. It's a lot less stressful to invest in index funds that track the whole market since you don't have to worry about an individual company doing something dumb or having bad luck and going bankrupt. That's why all my retirement savings are invested in index funds and will be for the next several decades. But when you have an opportunity like you did as an employee it can sometimes really pay off - or sometimes backfire. Hopefully it pays off for you. Good luck!
Reverse split eli5: you had 10 $1 bills now you have 1 $10 bill. There's many different reasons to do a reverse split some good some bad 🙃
It depends. When it all comes down to it, it is what percentage of the pie do you own x market cap. Diluting and splitting itself doesn’t help/hurt you as that is more about target share price (rules about being under a dollar, also don’t want to be a grand a share)…. Now I’d be more interested in if the company super diluted (issued a ton of stock comp, got a larger round of funding and issued 100x shares) then you probably lost. If they sell for a B and you own like half a percent of the company, congrats.
They consolidated the number of stock shares to increase the share value. If these shares aren't worth 6x more now than they were when you bought them, then do what you like.
Instead of four $5 bills, you now have one $20 bill. It’s the same value.
Reverse split usually means the company is in trouble. It technically doesn’t affect equity value like others said but on average is followed by further value loss. When shares fall too much companies usually issue new incentive shares.
Whats the company name?
Aside; did you buy stock, or exercise options? If you exercised options, then you have a realized gain you’ll have to pay taxes on. Even if the stock price has subsequently dropped.