News Column

Facebook Stock Dips as Employees Unload Shares

Nov. 1, 2012

Tim Devaney

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On the day another 234 million shares of Facebook stock hit the market, shares of the world's largest social network lost just 83 cents of value, suggesting that the company may be rebounding from months of bad Wall Street showings.

The flood of additional employee-owned and other restricted shares, which became eligible for sale Wednesday, produced slight effects as the stock closed at $21.11. Many newly public companies have suffered major losses as various "lockup periods" from the initial public offerings (IPOs) expired.

The Palo Alto, Calif.-based company, which suffered through a miserable IPO in May, ended one of its lockup periods Monday, but the Wall Street markets were closed earlier in the week because of Hurricane Sandy, so employees weren't able to sell those additional shares until Wednesday, delaying the expected decline in the stock price.

Lockup expirations increase the supply of shares available for sale, which often puts heavy downward pressure on the stock price. But Facebook seems to have weathered the storm fairly well, falling only about 3.8 percent on Wednesday after initially dropping as low as $20.73.

Some analysts suggested that Wednesday's slight losses could be a sign Facebook is getting closer to its true value, while others said investors already had factored the lockup expiration into their trading strategies.

"The lockup is something that investors should have already been thinking about," said Brian Blau, research director at Gartner, a technology research company based in Stamford, Conn., though he couldn't make specific comments about the company's stock price. "Typically, investors take a long-term view on these things."

Facebook appears to be on the rebound, following last week's third-quarter earnings report, which topped analysts' estimates for earnings and revenue and fueled a 25 percent rise in its stock price. The social-networking giant reported earnings per share of 12 cents, up 1 cent from average estimates, and revenue of $1.26 billion, a 32 percent increase from the same quarter in the previous year.

"Facebook seems to have a good direction," Mr. Blau said. "Based on their latest earnings report, at least the perception is they have things under control and are headed in the right direction."

These good reports come after months of struggles for Facebook. The company went public in May at $38 a share and at one point lost more than half of that price, sinking to a low of $17.55.

Facebook's mediocre first earnings report on July 26 didn't help much. The so-so results disappointed investors and sent the stock tumbling more than 13 percent overnight.

To make matters worse, investors fretted about Facebook's first lockup expiration of about 270 million shares just two weeks later. The stock fell about $1 that day. Worse was the speculation leading up to the expiration, as traders became wary of a drop in the stock price, which can trigger a massive sell-off. Last time around, Facebook's stock fell about $10, or more than 30 percent, in the month before the expiration.

This time Facebook's stock price actually has risen from as low as $18.80 less than two weeks ago. The 12 percent increase is in part credited to a positive earnings report last week.

Facebook will have to deal with several more lockup expirations over the next few months. On Nov. 14, the biggest such expiration will make nearly 800 million more shares available for sale. In December, more than 150 million new shares will hit the market, and in May 2013, the final group of about 50 million shares will end their lockup period.



Source: (c)2012 The Washington Times (Washington, DC) Distributed by MCT Information Services


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