Facebook is set to face its toughest test yet today, as its employees finally get the chance to sell their shares in the company- a move that could send its stock price tumbling further.
Today (Weds 14th November) marks the third stage in the share lockup period, as 777 million company shares are finally free to go on sale on the NASDAQ exchange. Lockup expirations are customary with initial public offerings.
These will be added to the 1.3 billion shares of Facebook stock trading, of its 2.2 billion shares outstanding.
For employees at Facebook, this marks an opportunity to turn their association with the world’s largest social network into hard cash. Employees, officers and early investors are typically required to wait several months before they can sell, preventing an avalanche of selling pressure to beat down a fledgling stock.
In previous waves, executives including chief operating officer Sheryl Sandberg and general counsel Ted Ullyot have cashed in some of their holdings, and one of Facebook’s most prominent backers, the venture capitalist Peter Thiel, has sold most of his stake since the float.
Even with lockups in place, additional selling pressure often hurts stocks. Stocks usually fall 2% after an IPO lockup is lifted, according to average estimates. .
This latest unlock of shares is the third since the company went public. After the first lockup expired in mid-August, shares fell 6% to set a new all-time low at the time of $19.87. When the lockup expired the second time in late October, shares fell again, by 3% that time.
Potential trouble for Facebook?
The move could spell further trouble for Facebook, as this latest lockup releases far more shares than the two previous combined and is the biggest one scheduled for the stock.
Indeed, the stock market is already feeling the jitters, with investors already being sour on Facebook stock, and the additional supply doesn’t inspire reason to buy. Shares are down nearly 50% from their IPO price at Tuesday’s close of $19.86.
Facebook founder Mark Zuckerberg is eligible to sell 504m of his shares, worth $10bn (£6.3bn) at Tuesday’s $20 closing price, but he has promised to hold on to them until September 2013 and the securities have not been counted in the totals being released this month.
Previous lock-down expiries have helped drive Facebook’s share price down to nearly half its $38 IPO level, but there is evidence short-sellers are losing interest, suggesting the drop may not be severe this time.
Facebook’s reaction will hinge on whether more or fewer employees than expected sell. Shares of online review site Yelp actually rose more than 20% in late August after a lockup because selling was smaller than anticipated.
