Oh man, where has the time gone? We’re already in the middle of August and one of the things that perhaps may have slipped some minds is that it’s already been three months since the largest tech IPO in history happened (albeit to some dismal fanfare). Since that fateful IPO by Facebook in June, not much has gone well for the company. First the company saw their stock IPO at the high of $48 per share, but ultimately it’s slipped by 40% over the past several months. Their first quarterly earnings report didn’t help them as much and the market let them know it. Sure, the company made $1.8 billion in revenue, an increase from $895 million, but according to the New York Times, not much more confidence was given moving forward. The market has continually punished the company over and over again with Facebook’s CFO, David Ebersman, saying that even he’s disappointed in how the stock was traded.
But the next test that lies ahead of Facebook isn’t their next quarterly earnings report, but rather the expiration of the requirement that prevents some shareholders from selling their stock in Facebook. By law, when a company hits the market, its insiders or those holding majority stakes are forbidden to sell any of their shares and an IPO lock-up is usually done so that the market is not flooded with too much supply of a company’s stock too quickly. Once the lock-up period ends, most trading restrictions are removed. According to the Hindu Business Times, this “lock-up” period is set to expire soon–the New York Times says it’s happening this Thursday. What happens after that? Well it seems some select shareholders will be allowed to finally sell their shares in the company. And what happens after that remains a mystery…it might be a sign of further bad news for the social network.
At stake here is 268 million shares of Facebook stock, worth an estimated $6 billion and will be from some majority shareholders, except for Mark Zuckerberg, who has a enormously large percentage of stock. These shareholders include directors and various employees at the social network, most likely early employees, who have been dying to get rid of their shares and strike it rich. Unfortunately with the stock price being so low, currently at $21.81 (at time of writing), is this going to be beneficial to the shareholder versus being advantageous to the stock buyer? Or maybe it’s time for shareholders to dump their stock so that they at least make out with something? Granted you’re not going to have employees giving up 100% of their stock (perhaps some might, but not all), but this might help guide the stock up since most people are probably interesting in the stock practice of “buy low, sell high” and it just so happens to be the buyer’s market, at least when Facebook is concerned. And this might help the company out since their valuation has slowly dropped since the IPO. Hell, Facebook founder & CEO, Mark Zuckerberg, has reportedly lost $9 billion as a result of this wild IPO. I’m sure any boost to the stock price will help him out.
And don’t discount people from buying Facebook stock, because it has a lot of potential and opportunity for it to go up. After all, it’s a brand new public company and there’s a lot of growth for it in the next few years, or maybe even more. And I’m not the only one that thinks that…the New York Times reports that some investors remain bullish on the company–it’s profitable and has found a way to keep its 1 billion users “glued to their screens longer than any other Internet site”. Oh, and they’re still tweaking their advertising model to find better ways to drum up revenue and appeal. And they already recognize that mobile is probably their achilles heel so they’re eventually going to work on that…so I wouldn’t be the farm against Facebook…at least not yet. One company is definitely not going to give up their hold on Facebook–Bloomberg reports that when the lock-up ends, Microsoft, holding about 1.7% of shares in the company, will not be selling them.
But it’ll be interesting to see what happens when a flood of shares gets sent into the marketplace because employees just want to get something for their money while investors eye a great opening to buy a potentially explosive stock so they can play the waiting game in order to strike it rich (or get richer). Will we see Facebook’s stock start to move upwards in a steady pattern starting this Thursday? And if so, is this the public financial turnaround that we’ve been waiting for from the social network?
Photo Credit: Facebook CEO Mark Zuckerberg via IPOParty.com