Fangdd Network (NASDAQ: DUO) stock will rise some 1,500% at the open DUO is not, though, retracing its recent disastrous falls. This is a purely nominal price change, not a real one. The effect - the direct effect at least - on any particular stock holding, or the market capitalisation of the company, will be zero. One of those things we’ve got to keep in mind, the difference between a change in nominal prices and one in real prices. It’s real prices that fatten or drain our wallets, not nominal.
As to what is done at Fangdd: “Fangdd Network Group Ltd., an investment holding company, provides real estate information services through online platforms in the People’s Republic of China. It operates Property Cloud, a software as a service solution for real estate sellers. The company also operates platforms for real estate agents, including Duoduo Sales, which offers real estate agents with instant access to marketplace functionalities and allows them to conduct transactions on the go; Duoduo Cloud Sales, which connects agents to property database and buyer base” and so on. Given the travails in the Chinese property market not all that much of a surprise to see that DUO hasn’t been doing all that well.
In fact Fangdd has been doing not well so badly that the stock price is 93% down over 12 months, 80% over 30 days. That last prompted by that injudicious capital raise and stock issuance.
Fangdd Network stock price from Google Finance
This then produces a problem. The American markets have a style, a fashion. Penny stocks are considered to be less than reputable. Happy hunting grounds for the likes of the Wolf of Wall Street and so on. So, penny stocks cannot remain on the main markets like NASDAQ and the NYSE. If you’ve done so badly that you become a penny stock therefore you’ve got to do something about it. Otherwise you’ll get relegated to the OTC.
That something is a reverse stock split. Simply declare that what used to be 15 shares are now one. With Fangdd it’s a change in the ADS ratio to the same effect: “Fangdd Network Group Ltd. (NASDAQ: DUO) (“FangDD” or “the Company”), a customer-oriented PropTech company in China, today announced that it will change the ratio of the American depositary shares (“ADSs”) representing its Class A ordinary shares from one (1) ADS representing three hundred and seventy-five (375) Class A ordinary share to one (1) ADS representing five thousand six hundred and twenty-five (5,625) Class A ordinary shares. For the ADS holders, the change in the ADS ratio will have the same effect as a one-for-fifteen reverse ADS split.”
The stock price will, mechanically, move up by 15x or 1,500%, The NASDAQ quote is thereby saved. It doesn’t - not directly - change the value of the company nor of any individual holding - it’s a purely nominal price change, not a real one.
