A Facebook selloff in 3 months?

Billions of dollars worth of additional shares could start hitting the market in just 90 days -- which could send the price down.

By MSN Money Partner May 17, 2012 5:17PM

By CNBC.com

 

Typically, insiders and major holders in a company that has just gone public have to wait 180 days to sell their shares.CNBC.com

 

But in an atypical move, Facebook tweaked the so-called lock-up period to allow for a large amount of additional shares to be sold just three months from now.

 

"Facebook has an unusually short lock-up period with the free float now expected to increase by 55% after just 91 days (which equates to about $10 billion worth of stock)," cautioned Rich Greenfield, an analyst with BTIG, in a note to clients Thursday.

 

To boot, even more shares can be unlocked 151 days from now, according to the amended Facebook filing from Wednesday. This frees up enough stock so that the float --or number of shares openly traded -- will more than double "before the traditional 180 lock-up period expires," said Greenfield.

 

Lock-up periods are put in place so a single holder can’t cash in all their stock right away, sending volatility soaring and the shares of a new listing downward.

 

When lock-up periods do end, the increased supply of shares hitting the market typically weighs on the stock. For Facebook, this difficult time will come earlier and with double the supply of the initial offering.

"This sounds to me like the Facebook investors are scrambling over each other, yelling, 'get me out!' said Enis Taner, global macro editor at RiskReversal.com. "Meanwhile, the Muppets buy."

 

However, this potentially weak period for the stock could be a buying opportunity, some investors said.

 

"The way to play Facebook, I think, is to look at LinkedIn (LNKD)," said Josh Brown, author of The Reformed Broker blog and a financial advisor at Fusion Analytics. "It will have a big opening week, then you’ll have plenty of time to add on during the lockup, then it will hit new all-time highs again."

 

Shares of the employment social network traded to a new high a couple months after its May 19 IPO last year, but the stock tanked before and immediately after its lock-up period expired 180 days later . LinkedIn hit an all -time low of $59 10 days after that lock-up expiration before rallying back to above $108 this week.

 

But that was a traditional calendar for a new stock. Facebook is testing uncharted waters with this shorter lock-up and larger share offering.

 

"They’ve had some infighting over people wanting to sell so its sounds like they moved up the lock up so those people could get out," speculated Stephen Weiss of Short Hills Capital.

 

Facebook may also be increasing the number of shares out there faster so that the stock can go into major indices -- and the exchange-traded funds that track them -- earlier than usual, traders said.

 

The Nasdaq-100 Index  (NDX) could add Facebook sooner if more shares are available for trading. The buying by index managers could help offset the monster selling by insiders.

 

Related at CNBC.com:

 

 

3Comments
May 18, 2012 9:14PM
avatar
Of course they want to get out, get cash in hand, cause the shares are only paper with limited value. 
May 20, 2012 8:00AM
avatar
when the Occupy wall st. bunch gets wind of facebook as a Billion dollar Co. from their trivial facebook pages.....they will be having some conniption fits...
May 19, 2012 6:59AM
avatar

See picture below:

 

We’re Sheryl Sandberg’s lonely hearts club band,

We hope you have enjoyed the show.

We’re Sheryl’s phony Disneyland fantasy band,

She’s sorry but it’s time for her to go.

Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

ABOUT TECHBIZ

Start investing in technology companies with help from financial writers and experts who know the industry best. Learn what to look for in a technology company to make the right investment decisions.

RECENT POSTS

Google unveils modular smartphone

Dubbed 'Project Ara,' the phone would have interchangeable parts, such as cameras or lighters, that could be slotted into a metal frame and held in place by magnets.

VIDEO ON MSN MONEY

RECENT QUOTES

WATCHLIST

Symbol
Last
Change
Shares
Quotes delayed at least 15 min

MSN MONEY'S