Facebook (FB) Investors Brace for Second Wave of Lock-Up Expirations
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By November the amount of Facebook (Nasdaq: FB) shares available, or the float, will increase by 280 percent due to lock-up expirations. On Thursday Facebook stock collapsed 6.3 percent, reaching a new, post-IPO low below $20 per share. The decline came in response to the first lock up expiration, which analysts say increased the float by 42 percent.
What When Wrong?
Facebook isn't declining because of the lockup expiration - not exactly. It is declining because there is a lack of demand for the stock given the high valuation. As more shares become available, supply increases and demand, ironically, decreases. In other words the lock-up expirations are feeding the already very bearish sentiment.
The one-day, post lock-up decline in Facebook was the second largest since 2011. The largest was Zynga (Nasdaq: ZNGA), a company that offers video games to Facebook users. Its stock dropped 7.9 percent the day after its lock-up ended. Insiders were keenly aware of this fact and many were expecting a similar reaction in Facebook.
Facebook stock has declined more than 47% since its IPO in mid-May. Groupon (NASDAQ: GRPN) and Zynga are also significantly below their IPO prices. It is almost as if there was a mini-tech-bubble and now it's the year 2000 all over again.
Eventually the stock prices in these companies will decline enough to attract value investors, who will come in and scoop them up at bargain prices. As far as momo traders are concerned, these stocks are dead. The momentum is gone and any upswing in prices will likely face furious selling from investors who are still underwater as well as insiders desperate to get out. The day Warren Buffet or a similar big-name value-guy stands up and says "I'll buy Facebook" – that’s the day the sentiment shifts. Until then expect small upswings followed by waves of panic.
The remaining IPO lock-up timetable looks like this:
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What When Wrong?
Facebook isn't declining because of the lockup expiration - not exactly. It is declining because there is a lack of demand for the stock given the high valuation. As more shares become available, supply increases and demand, ironically, decreases. In other words the lock-up expirations are feeding the already very bearish sentiment.
The one-day, post lock-up decline in Facebook was the second largest since 2011. The largest was Zynga (Nasdaq: ZNGA), a company that offers video games to Facebook users. Its stock dropped 7.9 percent the day after its lock-up ended. Insiders were keenly aware of this fact and many were expecting a similar reaction in Facebook.
Facebook stock has declined more than 47% since its IPO in mid-May. Groupon (NASDAQ: GRPN) and Zynga are also significantly below their IPO prices. It is almost as if there was a mini-tech-bubble and now it's the year 2000 all over again.
Eventually the stock prices in these companies will decline enough to attract value investors, who will come in and scoop them up at bargain prices. As far as momo traders are concerned, these stocks are dead. The momentum is gone and any upswing in prices will likely face furious selling from investors who are still underwater as well as insiders desperate to get out. The day Warren Buffet or a similar big-name value-guy stands up and says "I'll buy Facebook" – that’s the day the sentiment shifts. Until then expect small upswings followed by waves of panic.
The remaining IPO lock-up timetable looks like this:
- Between October 15, 2012 and November 13, 2012, an additional 133 million shares become available;
- on November 14, 2012, approximately 1,197 million outstanding shares an approximately 20 million shares underlying other net-settled Pre-2011 RSUs become available;
- on December 14, 2012, 149,432,006 shares held by the selling stockholders in our IPO other than Mr. Zuckerberg become available;
- and on May 18, 2013 47,315,862 shares held by Mail.ru Group Limited and DST Global Limited and their respective affiliates become available.
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