Many Facebook employees were given restricted stock units that would be converted into shares after the company went public. Depending on how long the employee has been at the company, the cost basis on the shares will be next to nothing. That means even though the stock is down 40% from the IPO price, employees who sell will be looking at essentially pure profit. Some might feel it's prudent to sell at least some shares, cashing in to pay for big expenses.
"Employees have been waiting for their money for so long, postponing major purchases, I think a good portion will sell and be done with it," says Francis Gaskins of IPO Desktop Premium.
Still, how the stock performs in the wake of Monday's expiration will provide a barometer of how Facebook employees feel about the stock, says Jason Malak, managing director at CBIZ Valuation. "If employees sell the stock, that sends a bad message to others that the price could go down," he says. "They might know something you don't know."
Right now, employees aren't saying what they plan to do once they are free to sell. Due to the sensitivity of the topic, most of the more than two dozen current and former Facebook employees that USA TODAY attempted to contact either didn't return calls or e-mails, flatly declined to comment or wouldn't talk on the record. Facebook, too, declined to provide any comment or tell USA TODAY what services it is providing its employees to manage this financial decision.
Even those who are willing to talk aren't saying much about their plans. Paul Ollinger says he was one of the original 250 employee at Facebook after joining the company in 2007 as an executive overseeing sales on the West Coast. He still owns shares, but declines to say how many or what he plans to do with them when he's able to sell. "I am very bullish on the company, its people and the long-term value of the stock," he said in an e-mailed response.
The first lock-up expiration, on Aug. 16, proved to be a major stumbling block for Facebook. Its stock set what at the time was a new low, $19.87 a share, in heavy trading.
Shortly after the expiration, it was disclosed that large early investors such as venture capitalist Peter Thiel were among those who took the opportunity to unload massive amounts of stock.
And now the fear is that the first lock-up expiration was just a hint of what might happen this time around, considering the much greater magnitude of new supply involved.
Since Facebook's stock is down so much from the IPO price, that might discourage employees from selling, says Tim Keating of Keating Capital. Employees might sell 10% of their holdings to "get a bonus," but many will likely hold on to see if the shares recover, he says.
Profiting in a mobile world
This is just the latest test of how willing investors are to be patient and wait for social networking to pan out. Despite high hopes, social media has been a bust for most investors. Shares of many of the promising social-networking companies have crashed as the hope of profit remains elusive.
The most dramatic example is Zynga, the online game company that gets much of its revenue by providing games over the Facebook website.
Shares of Zynga came public in December 2011 at $10 a share. Since then, the company has warned it's not doing as well as previously thought, and the shares have plunged to $2.39.
Facebook is at a similar crossroads, especially with its ability to find ways to make money as users increasingly access the site using smartphones, says Terry Connelly, dean emeritus of San Francisco Golden Gate University. The company's ability to convincingly create a business model that is bolstered by mobile, rather than threatened by it, is more important than any short-term supply issues created by the lock-up expiration, he says.
But while Facebook might have time to find ways to profit in a mobile world, the lock-up expirations are real and a big hurdle to overcome in the eyes of investors. Facebook's shares are still relatively pricey, trading at 78 times its earnings over the past 12 months. Compare that with the P-Es of Microsoft and Google of 15.1 and 21.2, respectively.
"Investors think Facebook has more growth ahead of it, but does it?" Keating says.
"Once investors start selling the stock, it's going to make a bad situation even worse," Malak says.
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