Lockup expirations have not been good for Facebook’s (NASDAQ:FB) stock; shares were driven down 5 percent to $20.15 after 271 million shares were released in August, and the social network dropped from $22 per share to $19 after many insiders sold off following the October 29 expiration.
With two more expirations scheduled for November 14 and December 14, nearly 1.2 billion Facebook shares will become available for sale in the next six weeks, effectively doubling the company’s available stock, or float. By mid-December, the social network’s float is expected to be 1.9 billion shares.
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Many analysts agree that once the lockups have expired, former employees, current employees, and early investors who have been holding the stock for a long time will be eager to sell at least a portion of their shares.
But how the releases will affect Facebook’s stock price has generated some debate.
According to the Business Insider, the logic of market efficiency presumes that Facebook’s stock price has the lockups priced in because investors have known about the expirations for some time, and therefore stock price should remain unaffected. Yet, the publication acknowledged that any news, or even inference, of a sell off by a key Facebook insider could cause shares to drop, as they did when Facebook board member Peter Thiel sold his shares after the first lockup release.
Pivotal Research Group analyst Brian Wieser argued a different perspective. In his opinion, “buckling of the stock would occur because of lots of selling at the same time.” However, as he told Bloomberg, “It seems like there’s enough demand to absorb this. Investors would have been a lot more nervous if third quarter numbers hadn’t come out well.”
Compared to other internet companies that have recently gone public, Facebook’s stock has experienced a lot of volatility amid the lockup releases. Both Zynga (NASDAQ:ZNGA) and Groupon (NASDAQ:GRPN) held a secondary offering of shares prior to the end of the lockup period in order to increase float and avoid major declines in their stock price.