Facebook's stock price hit a record low Thursday, sinking to nearly half its IPO price, as insiders became eligible to sell the first batch of shares that had been "locked up" by trading restrictions since the company's controversial stock market debut.
With investor confidence continuing to fall, experts said the price of shares in the world's leading social networking company could decline further if employees and early backers flood the market with more stock when additional lockups expire in coming months.
Thursday's trading was "not a good sign," said Trip Chowdhry of Global Equities Research, who has been outspoken in labeling Facebook "a good company but a terrible stock."
After sinking to a record $19.69, Facebook shares ended the day at $19.87 -- their lowest closing price ever -- as the stock clung perilously to a level just above half its $38 initial public offering price in May.
Since the May 18 IPO, which valued Facebook at a jaw-dropping $104 billion, investors have been shaken by reports of Facebook's slowing growth rate and by uncertainty over whether major advertisers are willing to commit their budgets to a still-evolving ad platform. At Thursday's closing price, the company has lost tens of billions in shareholder value.
Many analysts say Facebook has significant long-term potential for tapping into the spending power of its 900 million users. The
company has launched several new advertising programs in recent months, including some aimed at mobile users.
"We think Facebook's market opportunity remains large," said Arvind Bhatia of the Sterne Agee investment firm, who wrote in a recent report that he expects the company to improve its financial performance in the second half of this year.
But Facebook's stock slid more than 6 percent Thursday, the first day after the expiration of restrictions on the sale of 271 million shares held by early investors and certain executives. Companies typically impose "lockups" on insider shares for three months to a year after an IPO, to avoid driving down the price by flooding the market with too many shares at once.
Traders said the volume of Facebook shares that were bought and sold hit unusually high levels Thursday. It's unclear who was behind the selling, since major stockholders have until next week to report any significant changes in their holdings.
Some analysts suggested it was mostly outside investors, who were spooked by recent dire predictions about what might happen when the first lockup expired.
"The stock is off on the hype created by the media," said Michael Pachter of Wedbush Securities. He
argued that most of those who became eligible to sell Thursday -- including early financial backers and some top executives, although not founder Mark Zuckerberg -- were unlikely to do so because they already made money selling shares for $38 in the IPO.
But Sam Hamadeh of the Privco research firm said he believes some insiders sold shares Thursday. He cited regulatory filings that show Facebook investor and board member Peter Thiel recently converted a large block of shares to a classification that makes them easier to sell.
Analysts said the stock will face more pressure in the months to come. Facebook is expected to report earnings for the current quarter in October, just weeks before the biggest batch of insider shares become eligible for sale. A large group of mostly Facebook employees will be free to sell 1.2 billion shares as of Nov. 14.
"That one could be problematic," Pachter acknowledged in an email interview.
Others said a favorable earnings report in October could soften the impact. "If they show improvement and momentum, then we may not have a great flood of employees looking to unload their stock," said Rick Summer, a tech stock analyst with Morningstar.
Current estimates of Facebook's market value vary because financial reporting services use different figures for the total number of shares. Facebook has 2.14 billion shares outstanding, and some services multiply that by the $19.87 closing price to get a market value of $42.5 billion.
Facebook, however, says it has committed to issue additional shares for stock grants and the purchase of photo-sharing service Instagram. Those shares bring the total to 2.74 billion, which is the number that was used to calculate Facebook's record IPO value of $104 billion. On the same basis, the current value is $54 billion.
Most Popular Stories
- 15 Myths That Could Ruin Your Hispanic Ad Campaign
- AIG to Create 230 Jobs in Charlotte
- General Motors Names Mary Barra as First Female CEO
- Russia Says Nyet to Canada North Pole Claim
- Bipartisan Negotiators Reach Modest Budget Agreement
- Senate Dems Move Forward With Obama Nominees
- Justin Bieber Visits Typhoon Victims, Plays Concert
- New Obama Aide to Focus on Climate Change
- Obama Nominee Confirmed for D.C. Appeals Court
- MasterCard to Split Shares, Raise Dividend