Upcoming windows
Now let's take a look at some key upcoming lockup releases at social networkers and other tech companies. For a complete list, check EDGAR Online.
Lockup expirations: Various, but the big one is Nov. 14.
Over the next four months, about 1.6 billion Facebook shares will be released from lockup. This will likely hold the stock down, given the lofty valuation. Facebook trades at 30 times forward 12-month earnings, compared with 20 for Google (GOOG), which makes Facebook relatively pricey. Plus doubts linger about how Facebook can make money on the mobile platform, where it's tougher to run ads.
The lockup release happens in phases. The big rush for the exits may arrive on Nov. 14, when about 1.2 billion in shares get released from lockup. But 247 million shares will be set free before then, beginning Oct. 16. An additional 149.3 million shares will be freed for trading on Dec. 14. Facebook revenue grew by an impressive 32% in the second quarter, but the company failed to provide sales guidance for the rest of the year.
Weakness around the Nov. 14 lockup release may finally be the time to buy. Facebook shares have been nothing but disappointing since they hit the market in May, but the company has a pretty good position as the dominant social media platform.
Yelp (YELP)
Lockup expiration: Aug. 29.
Shares of Yelp, the online review site, have been weak this month, falling to below $19 from above $26, most likely as investors sell ahead of Wednesday's lockup release. On that day, 52.7 million shares become free to trade. Venture capital funds, which own most of those shares, weren't allowed to sell on the IPO. So they might be itching to get out now. Analysts have a consensus hold on the stock and median price target of $27, according to Thomson One Analytics. Given the consensus hold on this one so soon after the IPO, I'd be reluctant to buy it on lockup release weakness.
ExactTarget (ET)
Lockup expiration: Sept. 18
ExactTarget sells software that helps companies communicate with customers via social media, mobile phones, email and websites. The company posted 42% sales gains in the second quarter, to $69.3 million. Analysts forecast 41% operating earnings growth next year, on 22% sales growth. At around $20.70, the stock trades well below its first-day range of $23 to $30. But it still goes for a fairly expensive 5.5 times sales, compared with around five at Google. So it could be vulnerable around the lockup release. But analysts have a consensus buy recommendation and a price target of $33.50, according to Thomson One Analytics. Thus it might be a buy if the lockup release takes the stock down.
Millennial Media (MM)
Lockup expiration: Sept. 25
Shares of Millennial Media, which offers mobile advertising platforms, have fallen sharply since its IPO, to trade at less than $11 recently from above $24 on its first day out. Insiders, mainly CEO Paul Palmieri and technology chief John Brandenburg, were big sellers in early April just days after the IPO launched. Together, they dumped a combined 1.8.million shares at prices above $21. All told, insiders sold $37.6 million worth of stock right out of the gate in April, which probably helps explain the post-IPO sell-off.
The stock still sells for more than six times sales, which isn't exactly cheap. But analysts have a consensus buy and a $17 price target, and they project 57% sales growth next year, so it might be buyable on any significant lockup-related weakness.
Splunk (SPLK)
Lockup expiration: Nov. 16
Shares of Splunk, which sells data mining software, go for around $30.80, which is only slightly below the range it set on its first day of trading. Not bad for an IPO these days. The stock has held up even though insiders and early investors sold 13.9 million shares in late July and early August at just above $27, grossing $381 million. Given this resilience, the November lockup might not faze it. On the other hand, Splunk does trade for a lofty 21.5 times sales, which makes it seem vulnerable. But analysts project 75% operating earnings growth next year, on 35% sales growth. And they have a consensus buy and a $39 price target, according to Thomson One Analytics. So this one might be a buy on lockup-related weakness.
ServiceNow (NOW)
Lockup expiration: Dec. 26
ServiceNow provides cloud-based computing services that help companies manage information technology systems. Shares have done well since the late June IPO, trading at about $29.50, up from around $24 on the opening day. The shares are strong even though one insider dumped 3 million shares right out of the gate, grossing $57.8 million. I'll take that stock resilience as a bullish sign. Here's another one: About two weeks before the IPO, one director bought 337,500 shares at $16 to $17, according to Thomson Reuters. Insider buying around the time of an IPO is bullish, though this one did purchase at prices considerably lower than where you can buy today. ServiceNow trades for four times sales, which isn't too bad, considering that analysts expect 54% sales growth next year, followed by continued strong sales growth. Analysts have a consensus buy and a $31.50 price target. Given all the reasonably bullish signs here, I'd be a buyer on any significant lockup-related weakness.
At the time of publication, Michael Brush did not own or control shares of any company mentioned in this column.
Michael Brush is the editor of Brush Up on Stocks, an investment newsletter. Click here to find Brush's most recent articles and blog posts.
When a Facebook (FB) lockup expired Aug. 16, selling spiked, and the already-disappointing stock tanked. Volume jumped to 100 million to 150 million shares a day for three days, compared with an average of about 30 million before that. Facebook stock fell 13% by Aug. 20 to under $19, from above $22 on Aug. 13, a few days before the lockup release. Typically, lockup-related weakness kicks in several days early, as investors see it coming and sell beforehand.
At Angie's List (ANGI), the popular online consumer-review site, things got even uglier. Its lockup expired Aug. 14. Volume spiked to 3 million shares, compared with daily volume of around 400,000 before. The stock fell to about $11 from a close of $13.29 the day before. And it just kept falling to around $9, for a tumble of more than 25%.
LinkedIn (LNKD) fell from $80 a week before its Nov. 21, 2011, lockup release to $56 a week after, for a 30% decline.
