logoalt Hacker News

loeg • yesterday at 10:29 PM • 2 replies • view on HN

They own a smaller portion of outstanding shares, but the shares they own are worth more. Their value doesn't decrease.


Replies

donkers • yesterday at 10:39 PM

They're not worth more. The number of shares is increased by the amount that was issued. So that larger amount of equity is split among more shares.

A simple example:

Current equity of $100B, 100 shares outstanding. Each share is worth $1B, with 1% of voting power.

Then we issue $10B of equity via 10 shares.

Now we have equity of $110B, with 110 shares outstanding. Each share is still worth $1B, except each share now has 1/110 of voting power, instead of 1/100. Each share now only controls 0.91% of the company. Their ownership has been diluted.

edit: You can throw this comment thread URL into your favorite clanker (Claude, Gemini, whatever) and it will confirm exactly what I'm saying.

quickthrowman • yesterday at 10:59 PM

Issuing new shares is dilutive.

—

Stock buyback example:

There are 10 shares of ABC Corp, it has a market cap of $100. Each share is worth $10.

ABC corp buys back one share and destroys it, leaving 9 shares.

$100/9 shares=$11.11 per share.

—

Dilution example:

There are 10 shares of ABC Corp, it has a market cap of $100. Each share is worth $10.

ABC corp needs $10 so they sell one additional share which the board has authorized. There are now 11 shares.

$100/11 shares=$9.09 per share.

➕ show 1 reply