Although a Gazillion Facebook (FB) Shares are About to Hit The Market, Don't Be Nervous - Analyst

August 9, 2012 3:58 PM EDT
Get Alerts FB Hot Sheet
Price: $128.00 +0.06%

Rating Summary:
    48 Buy, 9 Hold, 1 Sell

Rating Trend: Up Up

Today's Overall Ratings:
    Up: 22 | Down: 33 | New: 34
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With dismal share performance since its IPO and now an impending lock-up expiration of more than 1.9 billion shares starting next week, or quadrupling of the float, investors in Facebook (NASDAQ: FB) are downright nervous. But they shouldn't be according to analysts at Pivotal Research.

"Because of the skew of the shareholders and volume of shares with selling rights available for sale next week, we believe the expiration of the first lock-up will be a non-event," said analyst Brian Wieser.

With shares weak, "concerns are partially diminished as it seems unlikely that shareholders who don't need to sell will do so given widespread understanding among those closest to the company that Facebook is not "MySpace 2.0," Wieser states. "Further, as the stock has traded down so much, new public company investors with a value-orientation are increasingly likely to become buyers."

The analyst said higher risk remains around the November lock-up expiration of 1.26 bilion, although he thinKs these will largely be mitigated by increased demand for Facebook stock which he sees occurring primarily as a result of improving operating trends.

Out of the November slug, Wieser assumes 55% of eligible shares are sold then, or 695 million share. This would equate to nearly three weeks of trading volumes on current levels, he notes. "As the base of shareholders eligible to sell will be much more fragmented, orderly outcomes become uncertain," he cautions.

"The most important point for Facebook in the context of the share lock-up expiration issue relates to how the company conveys to investors operating
momentum while secondarily enhancing education of its business opportunities," he states.

Wieser is maintaining his Buy rating and $33 price target on the stock.

For an analyst ratings summary and ratings history on Facebook click here. For more ratings news on Facebook click here.

Shares of Facebook closed at $20.72 yesterday.

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