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Facebook Inc. (Nasdaq: FB) shareholders haven't found much to like about the stock since its May 18 initial public offering and have unloaded their shares in droves.
Now, as a fresh wave of shares is ready to flood the market amid the expiration of a second lockup period, some company insiders are also shedding their holdings.
But CEO Mark Zuckerberg (in a move either impressive or desperate), hopes to halt a major selloff by pledging to hold all his Facebook stock for at least one year.
Zuckerberg, who has repeatedly appeared indifferent to Facebook's price swings and the ominous opinions from Wall Street analysts, has watched the tumbling FB stock fry his fortune. His stash includes 444 million shares plus options for another 60 million.
Following the announcement Tuesday of Zuckerberg's plan to hold his stock (he could have elected to sell shares on or after Oct. 29), shares of Facebook rallied nearly 2% in afterhours trading. They gained 4.8% Wednesday to close at $18.58.
That's still a far cry from FB's IPO price of $38 and peak of $45. Facebook hopes the executive moves will provide a sort of cushion under the company's share price.
But Wall Street is skeptical that Zuckerberg's short-term plan can resolve Facebook's long-term issue of proving its profitability.
"The disclosures from Facebook highlight how sensitive the management team is to the share price today," Stifel, Nicolaus & Co. analyst Jordan Rohan told The Wall Street Journal. Rohan said the shares that FB can't prevent from hitting the market could still give investors "stock indigestion."
"The only treatment for this indigestion is a steeper trajectory of earnings growth than analysts currently estimate. Otherwise, it will just take time for the digestive process to run its course," Rohan said.
Additional Measures to Help Facebook Stock
Tuesday's regulatory filing also revealed that directors Marc Andreessen and Donald Graham will hold on to their shares, only selling what is necessary to cover tax liabilities. (Zuckerberg also sold 30.2 million shares for $1.15 billion in May to pay taxes).
Collectively, the moves are intended to decrease the number of shares floating in the public market and lessen the blow in November when 1.2 billion shares are freed.
In addition, the Menlo Park, CA-based company detailed in the filing it will spend an estimated $1.9 billion to buy back 101 million shares from employees in lieu of issuing shares to cover tax obligations. That means FB is spending nearly $2 billion to keep shares from being released into the market.
To pay for the buyback, Facebook said it is using "our existing cash and borrowings from our credit facilities." Facebook at the end of June had $10.2 billion in cash and equivalents.
Facebook spokesperson Larry Yu said of the filings, approved by the company's compensation committee on Aug. 30, "We wanted to get the filing out as soon as we could after that meeting as a measure of clarity and transparency."
That's because immediately following the expiration of the lockup period, which bars company insiders from selling for a set period of time, the selling spree started.
Early investor Peter Thiel traded out of all of his shares, 18.6 million Class A shares and 9.3 million Class B shares, in early August. His Facebook stock gains have totaled more than $1 billion.
A few days later co-founder Dustin Moskovitz cashed in on a smaller scale, and has since ramped up his selling.
A fresh Facebook filing revealed that 28-year old Moskovitz is parting with another 450,000 shares to the tune of about $8.3 million. He has been dumping 150,000 shares a day and disclosing the sales every three days.
Moskovitz was Zuckerberg's roommate at Harvard when the duo founded Facebook in 2004. In 2008 he left the social networking giant and created the software company Asana.
Other employees may sell sooner than expected due to a change revealed in Facebook's filing this week.
Facebook had planned to convert the special form of "restricted stock units" held by most of its employees into tradable common stock on Nov. 14. Now, they will be able to trade their lots on Oct. 29.
Even with the value of Facebook shares down nearly 54%, these insiders stand to still book very generous gains when they sell.
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