In This Article:
Key Points
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The SEC has given its blessing to certain Newsmax shareholders, allowing them to sell their shares on the open market.
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As many as 121 million shares can now be sold, significantly more than were already publicly traded.
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The dilutive effect is likely to be significant.
Shares of Newsmax Media (NYSE: NMAX) are plunging on Friday. The media company's stock lost 18% as of 3:45 p.m. ET and was down as much as 23.6% earlier in the day. The steep decline comes as the S&P 500 (SNPINDEX: ^GSPC) and Nasdaq Composite (NASDAQINDEX: ^IXIC) lost 0.2% and 0.6%, respectively.
Newsmax announced today that the Securities and Exchange Commission (SEC) has approved its filing that will allow certain investors to sell their stock, leading to significant dilution.
More shares on the market
Newsmax announced that the "SEC has declared effective the Newsmax resale registration statement on Form S-1." This means that the shares held by investors who had taken part in a previous private placement and until now were prohibited from trading their shares on the public market may now do so.
Roughly 121 million shares could now enter the market. That is a massive influx of shares and represents a significant dilution risk. The SEC filing from the company acknowledges this, saying, "The Selling Stockholders may sell a substantial number of shares of our Class B Common Stock pursuant to this offering, which could cause the price of our Class B Common Stock to decline."
A challenging time
The company is operating deep in the red, losing $72 million on $171 million in sales. Despite the lackluster numbers and an equally poor balance sheet, the company's market capitalization is nearly $3 billion.
Newsmax was not a good investment before the release of these shares, and it is even less so now. I would stay far away from this stock.
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