Thursday, August 16, 2012

Facebook Inc (NASDAQ:FB) Hammered Down on Deluge of Locked-in Shares

The pain continued for Facebook Inc (NASDAQ:FB) shares as insiders grabbed the first opportunity they got to sell its shares after release of their lock-in.

Shares in the world’s largest social networking site owner fell more than 6.50 percent in early trades as, according to reports, more than 26 million shares changed hands on Thursday. About 271 million shares of the company became eligible to be sold.  The stock made another new low of $19.69.

Can FB Bounce Back Or Continue To Fall? We Have Special Analysis

It was like a cataclysm. There had been hopes that the inside investors would not sell their shares as the already battered stock would not give them much leeway to make a profit on their investments.

Against Wednesday close of $21.20, the shares were trading at $19.87, with the charts showing the steep vertical fall.

Like many initial public offerings, Facebook's May 18 debut included a "lockup" agreement that required some large shareholders to hold on to their stock for a certain period -- typically 90 to 180 days.

Lockups are meant to prevent the market from being swamped with too many of a company's shares immediately after an IPO. Keeping stocks scarce can help boost their value.

But when a company's locked-up shares are set free, the stock typically tanks, since millions of new shares flood in at once.

In the case of Facebook it could not have come at a worse time since investors have already been dumping the stock ever since its second quarter results revealed that the company's growth momentum in terms of revenues had slowed.

The social network also did not bother giving guidance for future quarters and this has created further uncertainty among investors and analysts, who were expecting a lot from the company.

Thursday is only the first in a series of lockup expirations for Facebook. Its unusual staggered system means several more expiration days are coming, and a total of 1.8 billion shares could hit the market in the next nine months.

Get Complete List Of Insider Trading On FB Here

Come November, there could be mayhem because that’s when the restricted stock units held by its employees will be converted into shares.

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