Review: Aurinia’s stock plunges after big share offering at deep discount
It’s really easy to forget the underlying purpose of the stock market. Everyone always looks at it essentially as a horse race or a measure of how well a company is doing.
But the reason the stock market exists is for companies to raise money. That’s the whole point of issuing (in other words, selling) shares to the public. They are selling ownership in the company to raise capital.
Now, the only information I know about Aurinia is what I’ve read in this article. It looks like they’ve been doing pretty well for themselves lately, and they decided to take advantage of their stock price and do a secondary offering. And they sold a lot.
They were able to raise about $150 million (as a reference, this is just a little bit shy of two tons of $100 bills). This is all perfectly reasonable – the company wanted to raise money to fund their operations, and their stock price had been shooting through the roof. It would have been really weird if they didn’t take advantage of the situation.
What is weird is that the article seems surprised that the stock price dropped after the shares were issued. All sorts of signals (both good and bad) are embedded in a secondary offering, but even if we ignore those, just mathematically, the stock price should go down.
If the value of the company hasn’t changed, but the number of shares goes up, then the price of those shares should go down. The value of the company is just spread more widely.
And in this case, not only did they issue a big chunk of shares, they priced them at a pretty solid discount to what the stock was trading at (which makes sense since they were trying to sell so many shares).
It would be really weird if the share price didn’t drop.
But this gets back to the disconnect people have with the market. We get caught up in all of the “investing” stuff about the market, because that how we normally interact with it.
But the stock market doesn’t owe you a retirement. It’s just a market.
For more on thinking about what the markets mean, read our ebook 
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