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When you have such a highly covered initial public offering debacle such as Facebook (NASDAQ:FB), investors are constantly on the lookout for history to repeat itself in any way possible. The social media giant’s stock recently took another leg downward as more shares became available for trading. However, at least one Internet name is escaping Facebook lockup expiration fatigue.
Earlier this month marked the first post-IPO lockup expiration for Facebook, bringing 271.1 million new shares to the market and boosting the number available for trade by 60 percent. 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.
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On Facebook’s lockup expiration day, shares of the company closed more than 6 percent in the red and hit fresh all-time lows. The downward move sent a clear message to investors that they should fear the new flood of shares hitting several popular Internet companies. However, shares of Yelp (NYSE:YELP) completely defied this warning. The company, which aims to connect people with great local businesses by providing more than 30 million written local reviews, surged 22.5 percent on Wednesday as about 52.7 million shares became available for trading. “It’s refreshing to see insiders with discipline,” explained Michael Pachter, analyst at Wedbush Securities.
Billionaire Peter Thiel, partner at venture-capital firm Founders Fund and one of Facebook’s earliest investors, attracted negative attention when documents revealed he sold 20.1 million shares of Facebook raising nearly $400 million following the company’s lockup expiration. Angie’s List (NASDAQ:ANGI), a membership service that complies consumer ratings of local service companies and contractors across the country, also received heavy selling pressure in the week following its August 14 lockup expiration. Shares plunged more than 25 percent as 25.2 million shares of the company became available for trading.
Although Yelp managed to surprise analysts and surge higher on its lockup expiration day, investors should keep in mind that the entire social media Internet sector remains suspect to long-term value. Facebook’s stock price has been cut in half in only three months, while Groupon (NASDAQ:GRPN) and Zynga (NASDAQ:ZNGA) have plunged 79 percent and 70 percent year-to-date, respectively. Even with Wednesday’s strong showing, Yelp shares are down almost 10.5 percent for the year.
Shares of Yelp (NYSE:YELP) traded higher over 12% in the past 5 trading days to close out the week at $22 per share.
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