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InvenSense S-8 theories and stock movement ?4

11:52 15-Jun-15


At first glance, the S-8 document that InvenSense filed this month looks like it is simply increasing the share count in order to continue the employee incentive plan.  Due to acquisitions last year, InvenSense is a bigger company than it was just a few years ago, and given the implied long-term strategy, I think it makes sense to register for a much larger share increase.

However, a new subscriber asked some questions which lead me to reach out to a resource who knows more about share accounting than I do.  That resource guesses that the large share count (13.8 million, which is over 15% dilution) signals a new acquisition by InvenSense.  This would be consistent with the short covering I've documented, but short covering alone doesn't make sustainable market moves.  The rebate rate is now near 3%, probably indicating that the process has a little bit further to go, but is expiring rather than accelerating.  The counter-market movements we've been seeing are also typical of covering, and it's not uncommon to see the largest moves in stock price towards the end of the process.

A new purchase might be taken as a positive by the market, but that will depend on the details.  Purchases can also be used by management to buy time and pad earnings, due to Goodwill and other vagaries of software revenue recognition.  It's much less likely that the new shares could be used to pay acquisition related bonuses.  All we know for sure right now is that InvenSense management wants another ~$200M to use for some purpose, but more may become clear once the registration is approved and the Proxy is available.

For now, none of this changes my increasingly cautious outlook for INVN, it just adds near-term noise and volatility.  In order for this to wind up being a true fundamental positive, a purchase would either have to be immediately accretive, or be a truly disruptive technology similar to the Lumedyne purchase.