Please ensure Javascript is enabled for purposes of website accessibility

Why Ebang International Stock Plunged Today

By Jon Quast - Updated Apr 1, 2021 at 11:39AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This company has increased its share count by 40% in under a year.

What happened

Shares of Ebang International Holdings (EBON 0.39%) plunged on Thursday after the blockchain technology company announced a new stock offering. As of 11 a.m. EDT today, the stock was down 13%.

So what

For clarity, let's first explore Ebang's stock structure. The common shares of the China-based company are listed in the U.S. unlike many other international stocks. However, it has a dual-class structure of Class A shares and Class B shares. Class B shares get 20 votes each, whereas Class A shares only get one vote. But as far as determining the total share count, they count equally.

A frustrated man faces away from the camera as he looks at a down stock chart in the background.

Image source: Getty Images.

Now that we've explored the structure of Ebang stock, I believe today's news will be easier to digest. According to today's press release, Ebang is selling 14 million units -- not shares. Each unit the company sells will include one Class A share and one half-warrant. A full warrant entitles the holder to a common Class A share.

Unfortunately for Ebang shareholders, the company didn't get a good price. The units will be sold for $6.10 each and the warrants have an exercise price of $6.59 -- both below where the stock is right now even after today's plunge.

Now what

In my opinion, however, it's not just the poor pricing causing the drop in Ebang stock today. The ongoing problem is the rate of dilution since the company's initial public offering (IPO) in 2020. At IPO, there were roughly 134 million shares on a fully diluted basis. After the new offering that priced today, there will be almost 188 million shares outstanding -- a 40% increase in under a year. In other words, if you bought shares of Ebang at IPO, you now own 40% less of the company because there are more pieces of the pie than before.

There are several companies like Ebang right now, developing cryptocurrency and blockchain solutions and services from scratch. But this is a costly process and is being funded by diluting shareholders. For example, SOS Limited stock fell on Tuesday and The9 Limited stock fell on Wednesday after both reported stock offerings of their own. 

As I've previously stated, the upside for all of these companies is that stock offerings do give management some much-needed cash to work with. That said, Ebang stock and others will be challenged as long as this stock-offering strategy continues to be used.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Ebang International Holdings Inc. Stock Quote
Ebang International Holdings Inc.
EBON
$0.74 (0.39%) $0.00
The9 Limited Stock Quote
The9 Limited
NCTY
$1.41 (-7.24%) $0.11
SOS Limited Stock Quote
SOS Limited
SOS
$0.39 (-2.60%) $0.01

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

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
345%
 
S&P 500 Returns
119%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/16/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.