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On Thursday morning, the first lockup period of some 1.91 billion shares of Facebook (Nasdaq: FB) ends, releasing even more of the battered stock into a market with few interested buyers.
The end of the lockup period (used to reduce trading volatility immediately after an IPO) will kick off with up to 271 million shares flooding the market on the sell-side. More shares will become available over the next few months, compared with less than 500 million currently authorized for trading.
Investors who got in early and paid a mere pittance for the stock may race to cash in despite Facebook's steady decline since its legendary May 18 initial public offering at $38 a share. Since the fabled IPO, which morphed into a trading fiasco, shares have lost some 40% of their value.
The flood of shares ready to be unlocked is off-putting for some potential buyers.
"It's one of the No. 1 issues on investor's minds right now," Herman Leung of Susquehanna International Group told Bloomberg News. "Even the investors that I talk to who want to buy the stock and like the company are not sure if they can stomach the lockups."
Facebook Stock: To Sell or Not to Sell
The lockup expiration doesn't mean those investors have to sell.
"It's not as if they have to sell all their holdings the moment the market opens. They want to be rational about this," Bryant Wiser, an analyst at Pivotal Research Group, told Bloomberg.
But venture capital firms usually don't stick around as holders of public investments for very long, so they are most likely itching to sell. And as they have divvied out stock to partners and related parties, shares will be sold by those who are more interested in cash than investing in weak stocks.
Even with Facebook's about-face since its IPO, those entitled to sell will still book very healthy gains.
Big investor Microsoft (Nasdaq: MSFT), which holds 26.2 million shares, or 1.7%, has no plans to sell its cache, according to a report from Bloomberg. However, the reason is not because the tech behemoth views them as undervalued or with upside potential, but more as a sign of support for an ally against Google (Nasdaq: GOOG).
Meanwhile, Facebook CFO David Ebersome reportedly has been meeting with smart money investors on Wall Street in attempts to convince them that the end of the lockup period actually opens up an amazing opportunity to buy shares of the social networking leader.
But Ebersome may find it impossible to convert skeptics.
"Investors who bought into the IPO have lost billions of dollars. He needs to get out there and tell the story of how he'll drive revenue growth," Victor Anthony, an analyst at Topeka Capital Markets explained to Bloomberg.
Facebook's first earnings report as a public company failed to deliver any such guidance. In July, the company revealed revenue growth was at its slowest point on record for the company, sinking from 45% to 32%, and future direction was evasive. Uninspiring and uneventful at best summed up the quarter.
Currently worth $52.2 billion, shedding more than $40 billion off its value since its IPO, Facebook is now the worst performer on record among all large IPOs, according to data compiled by Bloomberg.
"The underwriters (and the media) did a great job of hyping Facebook leading up to the IPO, and the sell-side, (including me) did a great job of hyping it after," Michael Pachter of Wedbush Securities, who has been closely covering Facebook since the start, told The New York Times.
What's more, since its steady descent, noticeably absent has been any board member and top executive buying as is often common at times like these. Insider buying shows a vote of confidence in the stock, but there has been no such display of assurance from Facebook's honchos.
"It becomes a company perceived as vulnerable rather than invincible," David B. Yoffie, a Harvard Business professor who sits on several technology boards, told The Times.
Who Can Sell After Facebook Lockup Ends
CEO and founder Mark Zuckerburg, who feigns indifference to his sizable wealth, cannot sell any shares until November, but there's a lengthy roster of who will be eligible tomorrow.
Following is the list of authorized sellers and their stakes, according to the IPO filing, as supplied by The Wall Street Journal.
- Peter Thiel: Class A shares: 18.6 million; Class B shares: 9.3 million
- Accel Partners: Class A: 135.7 million: Class B: 7.9 million
- DST Global Limited: Class A: 5 million; Class B: 80.6 million
- Goldman Sachs (NYSE GS): Class A: 41.6 million
- Elevation Partners: Class B: 35.5 million
- Greylock Partners: Class B: 29 million
- Mail.ru Group Limited: Class B: 36.8 million
- Mark Pincus: Class B: 33.4 million
- Microsoft Corp: Class B: 26.2 million
- Reid Hoffman: Class B: 3.8 million
- Tiger Global Management: Class A: 1.96 million; Class B: 32.8 million
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- The Wall Street Journal:
Facebook Lockup Expiration: Who Could Sell
- The New York Times:
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- Bloomberg News:
Microsoft Said to Plan To Keep Facebook Stake As Lockup Ends
- The Seattle Times:
Lockup period ends for Microsoft, other Facebook early investors