Why IonQ Stock Just Crashed
Key Points
Private equity firm Heights Capital Management will buy 20.5 million shares of IonQ stock for $40 a share.
Which is weird because IonQ stock currently costs less than $32!
It's a great deal for IonQ. For the investor, not so much.
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IonQ (NYSE:IONQ) stock tumbled 9% through 1 p.m. ET on Wednesday -- and it's got only itself to blame.
Just before shares opened for trading this morning, IonQ announced it will raise $2 billion in cash by issuing and selling warrants and new shares of stock.
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IonQ's big cash grab
Specifically, IonQ plans to sell 20.5 million shares of common stock for $40 each; plus 29.5 million "pre-funded warrants" to buy stock -- also for $40 each -- plus 100 million warrants to purchase IonQ stock, exercisable at $69.46 per share at any time in the next seven years.
One single investor, Heights Capital Management, Inc. -- which, according to data from S&P Global Market Intelligence, is a private equity firm owned by global quantitative trading company Susquehanna International Group -- will buy all of the above securities for $2 billion.
What it means for IonQ -- and You
It's pretty clear what's in this for IonQ: Although valued at nearly $14 billion, the quantum computing company has less than $250 million in annual revenue, is losing $1.4 billion a year, and, according to pretty much every analyst who follows the company, is still at least a half decade away from earning any profit whatsoever.
With $2.1 billion in cash reserves, IonQ is expected to burn more than $640 million in cash this year -- then $2 billion more over the next three years, emptying its bank account entirely. Raising $2 billion now is the smart move, heading off a cash crisis before it happens.
What's less clear is why Heights Capital Management is willingly paying $40 a share for a stock it could easily buy for under $32 today. That seems like a bad deal to me, for this investor... and for any investor.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends IonQ. The Motley Fool has a disclosure policy.
