Why Paysafe Stock Plunged by 10% on Friday

What happened

U.K.-based fintech Paysafe (NYSE:PSFE) had a lousy time on the U.S. exchange at the end of the week. On Friday, the company’s New York Stock Exchange-listed stock took a 10% hit on some dispiriting news about the future of those shares.

So what

Just after market close on Thursday, Paysafe announced that its board of directors has approved a reverse stock split. The company will reverse-split its common shares at a ratio of one new share for every 12 existing ones. The move will be effective almost immediately after market close this coming Monday, Dec. 12. The freshly reverse-split shares will begin trading the following day.

Prior to the board’s nod, the company’s latest piece of financial engineering was approved by shareholder vote at a special general meeting held on Thursday. The poll was overwhelmingly in favor of the measure, with approval of over 95%.

While the reverse stock split didn’t come as a surprise — Paysafe said in mid-November that the relatively uncommon move would be put to a vote — investors were nevertheless disheartened by the move. A reverse stock split is frequently a strong signal that a company is at serious risk of having its shares delisted. Paysafe currently trades at barely over $1 per share.

Now what

It’s important to note that any type of stock split, reverse or standard, does not change the market cap of the splitting party — it only shifts the number of shares and their price. Additionally, The Motley Fool’s research indicates that stock splits have little or no long-term effect on a company’s share price; rather, this depends much more on fundamental factors and outside factors such as the state of the macroeconomy.