Thursday, November 1, 2012

Facebook Shares Plunge After Lock-up Expires


Today, employees of Facebook were allowed to sell their stock after the initial Lock-up period expired on Monday. The Stock markets were closed on Monday and tuesday due to Typhoon Sandy and opened up today, Wednesday, 10/31/12 USA time.

Facebook shares lost $0.83 cents per share.

The Free Dictionary explains what a "Lock-up period" is:

A time during which a publicly-traded company forbids management and large stockholders to sell their shares, usually following an initial public offering. Depending on the company, the lockup period may be 90 to 180 days. It exists to ensure that the market is not flooded with shares in the company at any given time, which would increase supply and cause a drop in price. Large shareholders selling their shares may also be seen as an indication of a lack of confidence in the company, triggering a panic sell. After the lockup period ends, however, shareholders may sell without restriction.

Today, 234 million shares became available. In two weeks another 777 million will be available. Yahoo Finance explains:

A lock-up period that had prevented such sales expired on Monday. U.S. stock markets opened on Wednesday for the first time since Superstorm Sandy hit the East Coast, so that's when employees could start selling.

In all, 234 million additional shares and stock options held by employees as of Oct. 15 became eligible to flood the market. CEO Mark Zuckerberg is not selling. He has already said that he won't be selling stock until at least next September.

The next lock-up expiration comes on Nov. 14, when 777 million shares and stock options will become eligible to be sold.

Facebook Inc.'s stock fell 83 cents, or 3.8 percent, to close at $21.11 Wednesday. The stock is down 44 percent from its IPO price of $38.

Facebook is down more than 44.8% from it's IPO price. With this massive load of shares becoming available, I'm looking for Facebook stock to be under $15 dollars by end December 2013... 

My predictions for Groupon, while grim, were too optimistic. I said in Groupon Stock Holders! Head For The Exits! would be under $5 by end December, but I want to lower that to under $4. 

Update: Janet Tavakoli at Huffington Post writes in "Facebook Stock: New Strong Sell Signals":

After trading hours on Friday, October 26, several senior Facebook officers made required filings of 4s forms to the SEC reporting that on October 25, they converted their newly unlocked restricted shares from  Class B common shares, which get ten votes, to Class A common shares which only get one vote.  Unlike the Class B shares, the Class A shares can be traded in the public market.  In fact, the only reason to give up the ten times voting rich Class B shares for Class A shares is to ready yourself to sell the shares, since Facebook offers no economic value when the exchange is made.  In other words, as soon as their shares were unlocked, Facebook's officers got them ready for sale in the open market.

Like I wrote above, "Facebook stock to be under $15 dollars by end December 2013." Of course I don't know the exact timeline but, after that, look for Facebook to go the way of Myspace: Zero within a few years.

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