What Happened: Shares of online legal service provider LegalZoom (NASDAQ:LZ) fell 10.8% in the morning session after the company announced the launch of a secondary offering of 14 million shares of common stock at $10.00 per share by selling stockholders. Note that the company's total base of shares is roughly 195 million. The offering was upsized from the previously announced offering of 13 million shares and is expected to close on September 11, 2023.
A secondary offering is when existing shareholders sell their shares to new investors. In the case of LegalZoom, the secondary offering is not being done by the company itself but by selling stockholders. This means that LegalZoom will not receive any proceeds from the sale. However, the offering could still have a negative impact on the company's stock price, as it could signal that existing shareholders believe the stock is overpriced or are not confident in the company's future prospects. This is not always the case, just a possibility.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy LegalZoom? Find out by reading the original article on StockStory.
What is the market telling us: LegalZoom's shares are quite volatile and over the last year have had 32 moves greater than 5%. But moves this big are very rare even for LegalZoom and that is indicating to us that this news had a significant impact on the market's perception of the business.
The biggest move we wrote about over the last year was four months ago, when the stock gained 17.3% on the news that the company reported a "beat and raise" quarter. First quarter results exceeded analysts' revenue, adjusted EBITDA, and earnings per share (EPS) estimates. Business formations and transaction units, two usage KPIs, also beat. Revenue and adjusted EBITDA guidance for the next quarter were above Consensus, and the full-year revenue guidance was lifted. It was an impressive overall quarter for the company.
LegalZoom is up 23.5% since the beginning of the year, but at $9.75 per share it is still trading 37.2% below its 52-week high of $15.51 from August 2023. Investors who bought $1,000 worth of LegalZoom's shares at the IPO in June 2021 would now be looking at an investment worth $257.86.
