As D-day nears for Facebook Inc (NASDAQ:FB), Wall Street is getting more nervous at the prospect of more shares flooding the market. From Thursday about 2 billion shares in the company will be released for sale in the market by pre-IPO investors as the lock-in on those shares expire.
Of course, it is not necessary that all those shares will come into the market as the investors may want to freeze onto it. We have to remember that Facebook shares have declined more than 40 percent since it debuted in May at $38 a share.
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We also have to assume that these investors - who are seen as anchor investors in the company - would be looking at their investment as a long-term play.
In the first tranche about 271 million shares will be released, held by investors who had already sold in the IPO. Founder Mark Zuckerberg cannot sell as his shares are locked in till November. A few of the others such as DST Global and Mail.ru Group can sell only a limited number of shares.
Apart from Zuckerberg the other big investor is Accel Partners, which holds about 152 million Class A and B shares
The problem is whether investors are willing to wait it out till Facebook gets its act right. As its second quarter results showed the company is facing slowing revenue growth and it has to yet come out with a good strategy to reassure its investors.
Instead it has announced plans to offer gambling services to its users in those countries that permit it.
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It also said in a filing that moving to mobile ads would hurt its margins as the rates for these are lower compared to traditional ads on the web.
Shares of FB gapped up by over 4% to $21.24, recovering from its yesterday’s fall of 5.50%.