Here’s Why Facebook is Tanking

It wasn’t a good start for technology stocks as the markets reopened on Wednesday after the weather-induced break, with Facebook (NASDAQ:FB) following Apple (NASDAQ:AAPL) in taking a hit early in the morning. Shares of the social network were trading down more than 4 percent at $21.03 in the morning, and earlier fell as low as $20.94, 5.02 percent below Friday’s level.

About 50 million Facebook shares were traded in the first hour of trading as 234 million shares held by the company’s employees became eligible to be sold on Wednesday. The lock-up was supposed to expire on Monday.

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These lock-up agreements are made with the aim of preventing the market from being flooded with too many shares immediately after an IPO. However, Facebook shares have fallen every time a lock-up has expired over the last few months. In August, when early investors and company executives got their first chance to sell shares of the company, Facebook fell 6 percent. Another big challenge is on its way for the stock, with November 14 seeing the biggest lock-up expiration of 777 million shares. Additional lockups expire in mid-December and May next year. While co-founder and chief executive Mark Zuckerberg has announced he will not sell any of his 444 million shares and 60 million stock options in an attempt to stabilize the stock, other executives of the company have previously filed securities documents to convert shares into sellable options.

Facebook’s value has fallen rapidly since its IPO in May, but shares rose more than 22 percent last Wednesday after the company reported that third-quarter sales grew 32 percent and beat analysts’ predictions. The company has finally begun seeing benefits from new mobile advertisement efforts.

“This pullback is not about any fear that the company is doing poorly,” Wedbush Securities analyst Michael Pachter told MarketWatch. “It’s not any fear that the rank-and-file employees know something and we don’t. The problem with the stock is that there is just a supply and demand imbalance today. Demand is constant, and supply just went up.”

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