Digital Media Solutions (NASDAQ: DMS) stock should be up 1,500% at the open this morning. DMS stock prising by 15 x will not, sadly, be just recompense for long suffering shareholders. This is, instead, a purely nominal price change and one reliant on a purely technical move. No wallet will be fattened by this move - other than, perhaps, that of the lawyers handling the paperwork.
As to what’s done at DMS: “Digital Media Solutions, Inc. operates as a digital performance marketing company that offers a software delivery platform in the United States. The company operates through three segments: Brand Direct, Marketplace, and Technology Solutions. It operates as a performance marketing engine for companies across various industries, including consumer finance, e-commerce, education, insurance, home services, brand performance, automotive, gig, health and wellness, and career placements.” Given this modern world that doesn’t look like a bad business to be in. The problem is that Digital Media seems to be not very good at it. Losses ran to $29 million last quarter. Up from $7 million the year before. This is not the result of some one off adjustments, the company simply costs more to run than it brings in in revenue.
Well, OK, that happens, but then when that does happen something else also does - the stock price goes down. And that’s where the DMS problem is, or at least the problem they’re solving today:
Digital Media Solutions stock price from Google Finance
The problem is that DMS will likely need more capital and real soon now. Cash seems to be about one quarter’s losses for example. OK, that’s what being on the stock market is for, being able to raise capital. But that comes with a sting. NASDAQ has a $1 minimum bid requirement for maintaining a quote. This is just a cultural thing, the NY markets associate - possibly unfairly - penny stocks with those manipulations of the likes of the Wolf of Wall Street. So, you can’t be a penny stock and remain on the main markets.
The solution is to simply declare that 15 old shares are one new one - a one for 15 reverse stock split: “Digital Media Solutions, Inc. (NYSE: DMS) today announced that its Board of Directors approved a reverse stock split of the Company’s Class A common stock and Class B common stock at a ratio of 1-for-15. Earlier, on April 28, 2023, a majority of the Company’s stockholders approved a reverse stock split subject to the Board of Directors determining the final ratio. The reverse stock split is expected to be effective after market close on August 28, 2023 (the “Effective Time”). The Company’s Class A common stock will begin trading on a split-adjusted basis on the New York Stock Exchange (NYSE) at the market open on August 29, 2023.”
This doesn’t change the value of the company, just the number of shares that make up the company. Therefore the stock price reacts mechanically - one fifteenth as many shares, 15 times the price for each share. That solves the penny stock problem. But our suspicion is that we’ll not have to wait long for more stock to be issued to make up for it.