Facebook FAILS to Earn Investor Confidence
Facebook (NASDAQ:FB) sank to new all-time lows this morning. In less than three months, the social juggernaut has gone from one of the most highly anticipated IPOs of all-time to one of the biggest disappointments. Despite recent small votes of confidence, Facebook shares are overwhelmed by the first lockup expiration.
Mark Zuckerberg recently found some friendly faces in familiar places. Reed Hastings, chief executive of Netflix (NASDAQ:NFLX) and a member of Facebook’s board, revealed in a Securities and Exchange Commission filing that he purchased around $1 million in Facebook stock last week. Hastings reported buying 47,846 Class A shares at an average price of $21.03 each. The transactions took place on August 8, when Facebook’s closing price was $20.72. His only other equity position in the social media company appears to be 20,000 restricted stock units he was granted when he joined Facebook’s board back in June 2011. While stock purchases by a firm’s own executives or directors usually signals a vote of confidence, Hastings is the only Facebook insider to disclose buying stock since its IPO in May. Furthermore, investors may not place too much thought into Hastings’ move, after seeing Netflix’s stock price collapse from $300 per share to nearly $60 in only a few months.
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In addition to Hastings’ purchase, the Zuckerberg-led company received a very modest investment from his alma mater. According to Bloomberg, Harvard University’s endowment, which is the world’s largest college endowment, held 20,000 shares of Facebook at the end of June. Based on a share price of $20, the stake is valued at $400,000. Although this may appear to be a significant amount, the Harvard endowment held $31.7 billion under management at the end of June 2011. Thus, the Facebook stake represents only a small fraction of the overall portfolio.
Perhaps the biggest vote of confidence for Facebook comes from Microsoft (NASDAQ:MSFT), the world’s largest software maker. Bloomberg reports that Microsoft will most likely keep its stake in Facebook after a ban on sales expires today, according to a person with knowledge on the situation. Microsoft views the social media position as a “strategic investment” towards competitors such as Google (NASDAQ:GOOG) or Apple (NASDAQ:AAPL). The company held 26.2 million Facebook shares after the IPO, representing a value worth nearly $600 million.
Although Hastings and Harvard’s holdings may represent a marginal boost of confidence, the size of the stakes are really too small to consider as an endorsement for buying shares. Late Tuesday, many institutional investment managers filed their mandatory 13-F with the Securities and Exchange Commission. The 13-F is a quarterly report of equity holdings required by managers that oversee more than $100 million in qualifying assets. Soros Fund Management, a privately held hedge fund formerly managed by billionaire George Soros, befriended 341,000 shares of Facebook, but once again, the position was very small compared to the overall size of the portfolio.
On Thursday, Facebook became a teenager again, with shares falling below $20 a share. The social media company experienced its first share lockup expiration, which brought 271.1 million more shares to the market for trading. Many speculated that the expiration was already priced in to the share price, but that is clearly not the case.
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