Will Facebook Shares CONTINUE to Decline?

Facebook (NASDAQ:FB) shares fell 6.3 percent during regular trading on Thursday, closing at a record low after early investors got the green light to sell shares for the first time since the social network went public. As insider lockups begin to expire — it won’t happen all at once, but in groups over the coming months — it will pressure the stock as investors concerned about the direction the company is taking, or who believe it is overvalued, initiate a selloff.

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More than 1.4 billion additional shares will become eligible for selling by the end of the year, nearly tripling the amount available for trade. In November, many of the social network’s own employees will be allowed to cash in stock awards for the first time.

More than 270 million shares owned by early investors became available for trade on Thursday after a 3-month curb on sales ended. That’s more than half of the 421 million shares sold in Facebook’s initial public offering on May 18, when it became the only U.S. company to debut with a market value of more than $100 billion.

But revenue growth is slowing, and Facebook has yet to articulate a plan to reverse the trend. The company’s inability to monetize on mobile apps has been a sore spot as an increasing number of users access the size from mobile devices. These concerns have sent the stock down almost 50 percent from its $38 debut, and there are still millions of shares waiting in lockup are still waiting to be released.

More than 1.4 billion additional shares will become eligible for selling by the end of the year, nearly tripling the amount available for trade. In November, many of the social network’s own employees will be allowed to cash in stock awards for the first time.

After Thursday’s selloff, Facebook has lost almost $50 billion, or just under half, of its value since it went public just three months ago. The stock fell as much as 7.1 percent to an all-time low of $19.69 during the day, before closing at $19.87.

Analysts aren’t sure whether the selloff was driven by insiders, or by other shareholders worried about potential insider selling, but the effect is the same, and will likely be mirrored by future lockup expirations unless Facebook is able to calm concerns about its revenue growth and profitability.

Making matters worse, even after the steep decline of late, Facebook is still trading at 40 times its expected 2012 earnings — comparatively, Google (NASDAQ:GOOG) is trading at 16 times earnings, and Apple (NASDAQ:AAPL) at 14, which means Facebook has a lot more room to fall.

Another 243 million shares will be released from lockup between mid-October and mid-November. On November 14, when Facebook founder and CEO Mark Zuckerberg is first able to sell his own shares, more than 1.2 billion shares will be available for trading. The November lockup expiration has the potential to be much worse than the current one if Facebook doesn’t turn things around by then.

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