I wonder what is more to Market Capitalization formula ?

I am mostly an ETF investor, but follow some stocks with few # of shares and when I look at SPCE about 4-5 years ago its market capitalization was $1B and share price was little more than $10 per share.

Now share price for same stock is about $6.75, but market capitalization is $1.75B approx.

How can share price decrease and market capitalization increase ? Mathematically number of outstanding shares need to increase. How can companies print so many shares , diluting existing stock holder's equity?

Mathematically I understand what is market capitalization , but fails to understand that dilution can be so much, a few % point change in number of shares outstanding may be OK, but I see many examples where dilution is more than 100%. How to audit for fraud ?

  • You seem to understand the math of how it is calculated, so it doesn't seem your question is about 'market capitalization' at all. Instead, it seems your question is about the process required for a company to offer new shares + the impact new shares has on dilution + whether that implies fraud. Commented Aug 9, 2022 at 16:11
  • 3
    Does this answer your question? Why is stock dilution legal? Commented Aug 9, 2022 at 16:13
  • Based on my understanding of what you are really trying to ask, I've marked this as a duplicate of a similar question, which may provide an understanding of how share dilution is not itself indication of fraud. Commented Aug 9, 2022 at 16:13
  • Read the answers there, not just the title to the question. It discusses this in great depth. Commented Aug 10, 2022 at 13:03
  • I am not saying if stock dilution is legal or not legal, I am asking what is more to it that a regular investor be careful of and if it relates to dilution than if there is any limit ( X% per year) to this dilution
    – puzzled
    Commented Aug 11, 2022 at 2:37

2 Answers 2


Generally speaking, issuing new stocks is just a way to raise money to operate the business, see e.g. Why is stock dilution legal?

For Virgin Galatic, the situation is a bit different though. While they also issued new shares this way in 2020 and 2021 (increasing their market capitalization even more), the big jump from 2017 that you noticed has a different reason: it's just not the same company.

Virgin Galactic actually had its IPO only in October 2019. The company that you looked at in 2018 was a SPAC, basically a shell corporation that would collect money to later buy and become Virgin Galactic (or something else), to simplify the IPO for Virgin Galactic.

Assuming your numbers are correct, the basic process is: the SPAC collected 1 billion dollars until 2019 (thus it's market capitalization). They agreed with the owners of Virgin Galactic on a price for the company, e.g. 2 billion dollars (they ended up 49%/51%, so that's probably in the right ballpark).

They then merged the 2 companies (the previous SPAC, that was already listed, remaining), changed to a cooler name and a way cooler stock symbol - and Virgin Galactic was magically listed on the NYSE.

And the new old company jumped to a market capitalization of 2 billion dollars - because it was now 100% of Virgin Galactic, worth 2 billion dollars, instead of a company with 1 billion dollars in cash.


I'll admit upfront that this isn't a perfect answer, but I hope it can get you moving in the right direction.

There has been a very large increase in the number of shares. My best guess is that a company as risky/specuative as Virgin Galactic offered some very bid fish large blocs of shares at a deep discount (thorough digging of older news about the company should reveal details), thus diluting your shares.

If you look at the SPCE income statement and observe the line for Average basic shares outstanding, you'll see them climb from 80.87M to 247.62M.

I believe that in some cases of dilution, shareholders are offered ways to acquire additional shares to reduce or eliminate dilution. The only time I personally encountered this was over 20 years ago and I don't remember the details of the deal, other than it resulting in me having a larger loss when the company failed.

Hopefully someone more knowledgeable will pop up and fill in the missing puzzle pieces.


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