What: TubeMogul (NASDAQ:TUBE) stock retracted 15.6% in June, according to S&P Capital IQ data. This continues a months-long descent that began in December 2014, shortly after the video advertising technology firm hit an all-time closing high of $23.62. So far in 2015, TubeMogul stock has lost 41%; the shares closed July 8 at $13.09 per share, down from where they started the month.
So What: TubeMogul's weakness year to date is partly influenced by investors' unease with the still-evolving digital video advertising industry. But the software company's June performance can be directly attributed to a secondary stock offering it completed during the month.
TubeMogul offered 3.5 million shares to the public, priced at $15.75 per share, and significant existing shareholders offered another 1.76 million shares. The company received $52.2 million, net of costs, from the offering, which was priced on June 10. TubeMogul didn't receive any funds from the shares sold by existing shareholders.
A secondary offering of stock often has the initial effect of driving a stock price down. In many cases, the additional supply of stock on the market won't be met with an equal amount of demand. Furthermore, when a company issues new stock, it dilutes the equity of current shareholders, and some may choose to sell out of a distaste for having their share of company earnings watered down.
Even more selling pressure can manifest when an offering occurs soon after a corporation has gone public. In TubeMogul's case, the desire to raise funds just 11 months after the company's initial public offering (IPO) may have rattled some investors.
Now What: TubeMogul's management team likely saw the need to have ample balance sheet resources on hand when they decided to come to market with this offering. The company's Q1 2015 earnings report, issued in May, revealed a loss of $7.1 million, which is 1.6 times the amount TubeMogul lost during the entire year in 2014. The company did however improve revenue by 37.6% during the quarter.
The $52.2 million cash boost raised in the stock issuance should provide management and shareholders some peace of mind as TubeMogul seeks to support its attractive revenue growth with more profitable operations.
Prior to the offering, TUBE's balance sheet was already fairly healthy: Current assets outnumbered current liabilities by 2-to-1. Better yet, the company has no long-term debt to speak of. So while the June stock issuance catalyzed a further stock price decline in an already weak year, providing resources to absorb near-term losses is a sound priority for management to have acted on.