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Why Shift4 Payments Dived by 7.4% on Friday

By Eric Volkman – Sep 11, 2020 at 6:51PM

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Investors aren't impressed by a secondary stock issue coming only months after the company's IPO.

What happened

Shift4 Payments (FOUR -1.95%), which has been a standout performer since its June IPO, didn't have a good Friday. The company's stock downshifted on the pricing of a fresh round of equity financing.

So what

Shift4 Payments is selling 2 million shares of Class A common stock in a public offering at $48.50 apiece. The issue's underwriters have a 30-day option to purchase up to a collective 1.5 million additional shares.

A group of existing stockholders will concurrently unload 8 million of their shares at the same price.

Happy man holding phone and payment card.

Image source: Getty Images.

As with any secondary equity issue, this one is raising concerns about shareholder dilution. According to Yahoo! Finance, the fintech presently has just under 18.7 million shares outstanding. While 2 million to 3.5 million shares (depending on whether, and by how much, the underwriters purchase for their allotments) isn't excessively dilutive, it'll be impactful enough to affect current shareholders who hang on for the ride.

Additionally, that $48.50 per share is below Thursday's closing stock price of $50.02. A secondary share issue priced under the previous day's level doesn't generally inspire confidence in the value of a company's stock.

Now what

Since Shift4 Payments says only that the proceeds from the issue will be used for "general corporate purposes," it's anybody's guess where they will be channeled. The company has showed very robust revenue growth of late but continues to be loss-making, so likely there are numerous areas of its business that could use some investment.

Eric Volkman 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.

Stocks Mentioned

Shift4 Payments Stock Quote
Shift4 Payments
FOUR
$43.86 (-1.95%) $0.87

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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