On August 16, the first wave of Facebook (NASDAQ:
) lock-ups is set to expire. Over the next nine months, around 1.91
billion shares will be freed up for trading compared to the current
500 million that are freely traded. The coming expiration of
lockups is a major concern for investors who are worried that the
price of the stock could fall even further on heavy selling from
early investors that have been prohibited from selling Facebook
stock since the company's May 17 IPO.
Analyst Herman Leung at Susquehanna International Group told
Bloomberg, "It's one of the No. 1 issues on investors' minds right
now. Even the investors that I talk to who want to buy the stock
and like the company are not sure if they can stomach the
Investors whose shares are set to be freed from lock-ups are
faced with a difficult decision now that Facebook has fallen around
43 percent from its $38.00 IPO price. Many of them still have
substantial profits that they could realize and are likely
concerned about seeing the value of their holdings fall even
On the other hand, these investors don't want to act
irrationally and sell out at the bottom -- particularly when they
still believe in the future of the company. "It's not as if they
have to sell all their holdings the moment the market opens," said
Brian Wieser, analyst at Pivotal Research Group, who rates the
stock with a Buy rating. "They want to be rational about this."
Bloomberg reports that on Thursday, investors including Goldman
), Microsoft (NASDAQ:
), and Accel Partners will be able to sell more than 200 million
Facebook shares in the first wave of expiring lockups.
Facebook has been the most disappointing large IPO ever thus
far, wiping out $38.8 billion in market value since going public.
The lockups are staggered over time and the final round will occur
in May 2013.
Professor Anant Sundaram at Tuck School of Business at Dartmouth
told Bloomberg that he thinks Facebook's steep decline could be
reason for investors not to sell. "Will there be a significant
downward move?," he said. "Probably not, would be my guess, given
that stock has already fallen quite a bit."
Nevertheless, it will take a considerable amount of courage on
the part of buyers to step into the stock given the flood of shares
that are set to be released for trading in the coming months. If
these lockup dates come and go without causing the price to drop,
however, it could be seen as a major catalyst for Facebook as
investors interpret it as an all-clear sign that the heavy selling
Shares of Facebook traded down Monday one percent at $21.59.
(c) 2012 Benzinga.com. Benzinga does not provide investment advice.
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