Mogo (NASDAQ: MOGO) (TSE: MOGO) stock should rise 300% this morning at the open. Given the 93% value destruction from the peaks, the 44% over the past 12 months, this will be welcome news to long suffering shareholders of course. It’ll also make absolutely no difference to the value of their holdings for this is not a real price move, it is a technical and nominal one. The market capitalisation of the company won’t change, not directly it won’t, and nor will the value of any individual stock holding. We could wonder why anyone is bothering therefore but it does have to be done all the same.
Mogo, for those lucky enough not to be holding it, is in a way like a junior version of RobinHood. The current incarnation is to attempt to be an online trading platform accessible through mobile that is. There have been earlier incarnations, there was a crypto phase - who hasn’t tried that? - and before that direct offerings of products like mortgages. The problem is that none of these have really taken off. The meme trading boom didn’t quite catch, the crypto didn’t quite catch and so on. There was even a $100 million takeover - of Carta - paid for in stock and since the current market capitalisation is $50 million or so that didn’t quite work either.
The stock’s down that 90% and change since the peaks and it’s this, and this alone, which produces the current problem that has to be solved.
The Americans can be more than a bit classist about stocks. They’ve this idea that a penny stock is likely to be - OK, could possibly be - subject to the manipulations of fraudsters and conmen. It’s true that financial fraudsters do tend to try and operate in this sector but that’s not quite the same as stating that all penny stocks are so manipulated. Still, this idea means that you cannot remain on the main exchanges - NASDAQ, NYSE - if you are a penny stock.
The aim of being on an exchange at all is to be able to raise capital when needed. But raising capital is much easier, much cheaper, on the main exchanges than it is on the OTC with the lack of liquidity and this generally lower prices there. So, keeping that main market quote is important. But penny stocks will eventually lose that main market quote. Something must, therefore, be done.
That something is a reverse stock split. Simply declare that what were three shares are now the one. Exactly what Mogo is doing: “Mogo Inc. (MOGO) will effect a one-for-three (1-3) reverse split of its Common shares. The reverse stock split will become effective on Monday, August 14, 2023.” This doesn’t affect anything other than the number of shares which make up the company. Therefore the stock price reacts, mechanically, and produces that 300% rise. The NASDAQ quote is saved and Huzzah! And that’s all that’s happening here. A purely mechanical rise in the Mogo stock price to meet the listing requirements.