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Why Shares of Futu Holdings Fell Today

By Bram Berkowitz - Updated Apr 20, 2021 at 5:39PM

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The company announced plans to issue 9.5 million American depositary shares.

What happened

Shares of the Hong Kong-based digital broker and wealth management platform Futu Holdings (FUTU 1.03%) fell more than 23% today after the company announced that it plans to issue new shares.

So what

Futu announced the offering of 9.5 million American depositary shares, each representing eight Class A ordinary shares of the company. Citing an anonymous source, The South China Morning Post reported that Futu is seeking to raise $1.9 billion.

Line with arrow attached moving downward.

Image source: Getty Images.

Futu plans to use the cash from the offering for general corporate purposes, including its margin financing business, international expansion, new license applications, potential investment and acquisition opportunities, and other purposes.

It is common for shares of a company to drop following a new issuance because new shares dilute existing shareholders, and essentially result in profits being split over more total shares.

Now what

The new raise is the second Futu has done within the last eight months. The company is coming off a strong quarter of earnings in the fourth quarter of 2020 in which it beat analysts' expectations on profits and total revenue.

But the stock has also exploded over the last year, from just above $10 per share in April of 2020 to trading for more than $136 now, so a drop in share price is not unexpected.

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