Trivago (NASDAQ: TRVG) stock will jump 500% today. Given that it’s just fallen heavily as a result of one management action it might seem odd that management are now taking action to push it back up again. But this is really all part and parcel of the same set of actions. There are certain constraints on what the company can do and how it should do it. Threading through these leads to this idea of a - deliberate - 50% fall a couple of days back to be followed by this 500% rise today.
The first action was that special dividend: “November 13th - Trivago (TRVG.US) is trading ex-dividend on November 14th, 2023. Shareholders of record on November 3rd, 2023 will receive 0.56275 USD special dividend per share on November 13th, 2023. The ex-dividend date is November 14th, 2023.” Hey, returning cash to shareholders, that’s just great. 56 cents comes in useful and all that. But given that this is a special dividend, is a return of capital - and not the first of some ongoing set of higher dividends off into the future - this is obviously going to hit the stock price. And, given where the stock price was, just above the $1 mark, it’s going to mean about 50 cents, or about 50%, off that stock price.
Trivago stock price from Google Finance
This though then produces its own problem. For to maintain a Nasdaq listing requires obeying the listing rules. One of which is a $1 minimum bid price for the stock. But that capital return has clearly led to a breach of that idea.
This is easy enough to solve too, we see several companies doing it every day (not the same companies doing it each day, obviously). Simply declare that the ADS - the thing that is actually listed - now represents 5 of the underlying stock, not the one previously. The effect of this will be the same as a one for five reverse stock split: “Trivago N.V. (TRVG) will effect a one-for-five (1-5) reverse split of its American Depositary Shares and a ratio change from one (1) ADS representing one (1) Ordinary Shares (1:1) to one (1) ADS representing five (5) Ordinary Shares (1:5). The reverse stock split will become effective on Friday, November 17, 2023.”
And so the listing rules are obeyed for the stock price will rise 500%, or 5x, in response. This is a purely technical and nominal change. The only implication we can extract from this is that the directors of Trivago don’t think that the stock price is going to double in real terms any time soon. For they’ve 18 months before a sub-$1 stock has problems with Nasdaq for being a penny stock. But if they’re taking corrective action right now presumably they don’t think that the stock price will do that on its own. Maybe.
