Did you catch how ViacomCBS was down around 9% Monday morning after announcing its secondary stock offering?
The company said after the bell Monday it will sell $3 billion in stock with two secondary offerings to help finance its streaming services, Paramount+ and Pluto TV — ultimately capitalizing on the recent jump in stock price, up about 170% the past three months.
ViacomCBS plans on sell $2 billion in Class B common shares, and $1 billion in Series A Mandatory Convertible Preferred stock.
So now we have a special situation in the stock market that’s picking up a lot of momentum and causing small explosions in stocks.
But… I’m not hearing investors talk about it at all.
Since I’ve never been the type of guy to ignore the elephant in the room, let’s talk about it.
The ViacomCBS Secondary Stock Offering
While every trader out there is focusing on special purpose acquisition companies (SPACs) and non-fungible tokens (NFTs), I’ve noticed that additional equity offerings are beginning to make ripples in the market.
An additional equity offering — also known as a secondary offering — is when a company issues more shares of stock after its initial public offering (IPO). The company will increase the amount of shares it has in the market to raise its equity, which in turn raises capital it can spend.
Why do companies do this?
Well, the simple answer is because they can.
In the company’s mind, it makes more sense to sell stock in order to finance debt or make acquisitions.
Since secondary offerings increase a company’s already existing shares, it also ends up diluting a stock’s value for current shareholders.
There are two things that usually happen when a company issues a secondary offering:
- Flooding the market with new shares can cause the stock to sell off.
- Additional equity offerings can be a good thing if the money is used to pay off debt and improve the company’s standing.
But the reason I’m making this video is because of a stock I’ve been watching closely of late…
ViacomCBS Inc. (Nasdaq: VIAC) is an American multinational mass media conglomerate created by the merger of CBS Corp. and Viacom. The new, merged company recently entered the streaming war with the launch of Paramount+, and the stock has gone parabolic.
But the more you look into the ViacomCBS secondary stock offering, the more you realize the company doesn’t exactly need the cash… And the more it looks like ViacomCBS is shorting its own stock.
And ViacomCBS isn’t the only company that’s capitalizing on this practice… So far we’ve had about $10 billion worth of secondary offerings just in March alone…
And after looking at its monthly chart, I may have an idea how investors could trade the ViacomCBS secondary stock offering… If they’re brave enough!
Check out my short video below to learn more about ViacomCBS secondary stock offering, and see how you could play it for potential gains. Be sure to share your thoughts in the comments section below.
And as always, email any trading questions to jeff@joyofthetrade.com and stay ahead of the markets, especially these choppy ones, by subscribing to our YouTube channel.
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