Shares of baby technology stock Owlet (OWLT -10.92%) dropped as much as 28.5% in trading on Wednesday after insiders registered to sell shares and warrants. Shares closed trading off 27.6% and saw momentum lower all day.
Owlet filed a prospectus with the Securities and Exchange Commission that related to the sale of up to 77.4 million shares of stock, 6.6 million warrants, and the issuance of up to 18.1 million shares of stock if warrants are exercised. The company itself is not selling any of these securities; rather, security holders like Fidelity, Sandbridge Capital, and venture capital firm Eclipse Ventures are registering to sell shares, although Sandbridge and Eclipse are subject to an 18-month lock-up period for all or some of their shares.
These investors were both early investors in Owlet as well as PIPE (private investment in public equity) investors when Owlet completed its merger with a special purpose acquisition company. They don't have to sell based on this filing, but the fact that they're registering to sell shares a little over a month after the merger was completed is jarring to investors. Plus, the fact that 18.1 million potentially dilutive warrants are outstanding could take some of the upside from public investors.
As much as the market is freaking out about Owlet's filing today, the stock closed trading at $6.53 and warrants are exercisable at $11.50, so the warrant issue isn't something to be worried about. What would be notable is insiders cashing out so quickly after the company hits public markets. We won't know all trades that happen, but if Eclipse Ventures starts selling shares or other big shareholders begin cashing out it could be a sign that insiders don't have faith in the company's long-term potential. And that's a valid concern for shareholders today.