News Column

Do Big Investors Hate Social Media?

Aug. 22, 2012

Matt Krantz

Social Media

Investors in social-media companies appear to be in an anti-social mood, as they bail out of stocks in the sector, including Facebook.

Many large investors in social-media stocks aren't waiting long to sell as soon as they get the chance. While investors may think the selling is an indication these companies' early backers have little faith in the stocks, those sales can be misleading, analysts say.

Peter Thiel, an early backer of Facebook and a board member, was the latest and largest investor to sell a large chunk of his company stock. It was disclosed Monday that Thiel dumped more than 14 million shares of the company, equal to a majority of his holdings, according to analyst Richard Peterson of S&P Capital IQ.

Still, Thiel is not the only big investor in the know to cut bait on social-media stocks. Consider:

More selling by Facebook insiders and early investors. There hasn't been rampant selling yet by Facebook insiders. Most early investors must adhere to strict lockup rules that prohibit selling until waiting periods are over. But the ramping up in sales is starting, which won't help a stock already down 50% from its IPO price.

Combining Thiel's sales with those of all the investment vehicles with which he is associated, more than 20 million of 27.9 million shares were sold, Bloomberg News says.

Otherwise, Facebook insiders haven't been unloading, yet. "There hasn't been much insider selling, with the exception of Mr. Thiel," says Richard Uhl, analyst at Thomson Reuters.

Facebook lockups' lapse looming. The biggest test will come as more investors are freed to sell. An additional 247 million shares will be unlocked Oct. 16 and a deluge of 1.2 billion shares will be available to be sold Nov. 15. The fact shares took a hit after the first and one of the smaller lockups ended doesn't bode well for when more shares come available.

Selling at other social-media companies. Facebook has company in terms of seeing some early and large investors sell. Early investors in Groupon and Zynga, much-watched social-networking stocks, have sold large stakes, according to filings.

Investors shouldn't read too much into high-profile sales, says Robert Kennedy, analyst at Gradient Analytics. For instance, Thiel filed a document on May 18, the day the stock started trading, that he planned to sell the shares he just sold, Kennedy says. Sales by early investors are extremely common around the time of an IPO as these insiders look to raise cash and find the next successful start-up.

"It's so common for insiders to sell around the IPO," Kennedy says. "It's quite common for someone involved this long with a company to sell."

Source: Copyright USA TODAY 2012

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