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Facebook (NASDAQ:FB) insiders sent a clear message about the company’s stock, sell it. On Thursday, shares of the social-media juggernaut witnessed another steep decline on heavy volume as millions of shares became available for early investors to sell. However, as seen with other popular internet names, the pain could be far from over.
In the first ten minutes of trading yesterday, more than half of Facebook’s average daily volume changed hands. The day marked the first post-initial public offering lockup expiration, bringing 271.1 million new shares to the market and boosting the number available for trade by 60 percent. Investors who bought into Facebook’s story early, such as Microsoft (NASDAQ:MSFT), DST Global, Goldman Sachs (NYSE:GS) and Accel Partners, are now able to jump ship. While a Bloomberg article earlier in the week indicates that Microsoft will likely hold onto its position for a “strategic investment,” Accel Partners is reportedly dumping 50 million shares.
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Lockup agreements are nothing new, but rather just another part of the IPO process. They often require some shareholders to hold their position for a certain period of time, normally around 90 to 180 days. The purpose is to limit the market from being flooded with too many shares of a specific company. However, when high flying internet names with already overpriced valuations dump more shares on the market, the results can be ugly.
The list below shows how several recent internet IPOs have performed near lockup expiration:
One Month Prior to Expiration: -10.81 percent
Day after Expiration: -7.64 percent
YTD: -75 percent
One Month Prior to Expiration: -17.80 percent
Day after Expiration: -2.78 percent
YTD: 65 percent
One Month Prior to Expiration: -22.40 percent
Day after Expiration: -7.87 percent
YTD: -68 percent
One Month Prior to Expiration: -28 percent
Day after Expiration: 0.30 percent
YTD: -3 percent
On Thursday, shares of Facebook closed more than 6 percent lower and reached a new all-time low below $20, representing a 48 percent plunge from its $38 IPO price set in May. Although shareholders have taken a beating over the past three months, the sea of red may continue to flow. The 271.1 million shares recently freed up only account for 14 percent of the almost 2 billion that will become available in the next nine months. Another 243 million shares are set to be released from lockup between mid-October and mid-November. On November 14, more than 1.2 billion shares will be available for trading and another 149.4 million shares a month later. The final round of lockup expiration does not occur until May 2013, when 47.3 million shares are set free from the sinking ship.
“Buckle your seatbelts for the next couple of months until they make it through all these shares coming unlocked,” Telsey Advisory Group analyst Tom Forte told Bloomberg.
In Friday trading action, shares of Facebook (NASDAQ:FB) sank to a new all-time low of $19.02, down over 4%, and almost 50% lower from its IPO start date.
Investor Insight: SOCIAL MEDIA: $1 Trillion Value Added or Tech Bubble 2.0?
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