Can Facebook Survive the FLOOD?

Shares of Facebook (NASDAQ:FB) tumbled in premarket trading as one lockup period preventing insider sales ended on Thursday. With 271 million new shares unlocked at the market open, increasing the company’s pool of liquid stock by roughly 60 percent, the social network was down more than 6 percent to a NEW LOW of $19.69 an hour into the today’s trading.

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Facebook’s shares are already down 44 percent since the IPO and 25 percent over the past month alone, leaving hardly enough demand to absorb the potential new wave of sell orders. To make matters worse, 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.

“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.

Early Facebook investors, including Microsoft (NASDAQ:MSFT), DST GlobalGoldman Sachs (NYSE:GS), Elevation Partners, and Accel Partners will be allowed to start selling part of their holdings on Thursday. Facebook director Peter Thiel is likely to sell after converting more than 9 million shares to Class A from Class B recently. Class A shares are easier to sell on public markets.

Most of the concerns about Facebook that have led to the steep drop in its stock price have centered on its ability to keep increasing sales and come up with robust and sustainable models of revenue, especially on the rapidly growing mobile platform. However, not everyone is pessimistic about the social network’s future. Sanford Bernstein analyst Carlos Kirjner said he believes in Facebook’s underlying value and asked investors to look at the lockup expirations as a buying opportunity.

“The impact of the increase in float due to the lock up expiration tomorrow and in the next few months is not a reflection of the fundamentals of the business and will likely be fleeting,” Kirjner wrote in a research note. “We have a market perform rating on Facebook. However, if the abrupt growth in liquidity tomorrow (or in November when the float increases by 1.3 billion shares) leads to a significant drop in the stock price, e.g., into the teens, we would see it as a potentially attractive buying opportunity.”

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