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Ahead of Facebook’s (NASDAQ:FB) largest share lockup expiration, investors had feared that the additional 804 million shares that would become available for trading on Wednesday would further depress the social network’s stock price.
But contrary to concerns, shares soared 12.59 percent in Wednesday trading, prompting comparisons to Yelp’s (NYSE:YELP) August lockup expiration, which sent shares up 24 percent.
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The investors’ fears were well-founded. In the past three months, two Facebook lockup expirations have triggered selloffs. The company’s mid-August expiration, which unlocked 270 million shares, was partly responsible for the stock reaching its record low of $17.55 in early September. Shares unlocked last month pushed the stock down once more, to $19 per share. However, with the stock’s performance on Wednesday, the bear thesis appears to have been refuted, at least so far.
University of Florida finance professor Jay Ritter attributes the stock’s rise to its October earnings report.
“The fact large institutional buyers like mutual funds have been willing to step up an buy Facebook, especially after the company’s better-than-expected earnings report last month, is also putting somewhat of a floor under the shares,” he told USA Today. “In that earnings report, Facebook showed traction in generating revenue from mobile users, a long-standing concern of investors since the IPO.”
On October 23, Facebook reported that third-quarter advertising revenue increased 6.7 percent from the previous quarter and grew 32 percent year-over-year. As Facebook generates the majority of its revenue from advertising, the quarter’s results caused shares to rise 19 percent and gave Wall Street more confidence in the company’s profitability.
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