Thursday, August 16, 2012

Facebook Inc (NASDAQ:FB) Showing Further Weakness As Floating Shares Hits

It fell just short of being a bloodbath. Shares of No.1 social networking site Facebook Inc(NASDAQ:FB)  fell as low as $19.69 during the day, as newly released shares from a lock-in made its way into the market.

More than 100 million shares were traded during the by noon, that is more than three time the average volume on a full day. About 271 million shares held by large inside investors got their shares released from a mandatory lock-in which expired today.

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But mercifully it looked like not all of them have decided to dump the stock that has already been hammered down more than 45 percent from its May debut price of $38 a share.

Despite all the selling that came in during the day, the stock did not go down to the $19 level, which would have meant that about half its value had been wiped off.

Investors ranging from Accel Partners to Goldman Sachs, Zynga Chief Executive Mark Pincus, James Breyer, Peter Thiel and Reid Hoffman were among those who were free to sell their holdings in the company if they  so wished.

Lock-up periods prevent insiders from unloading shares too close to an IPO and can help prevent volatility that might occur if too many shareholders decide to sell a newly traded stock all at once.

This is not the end of the release of shares for Facebook. Over the next three months more shares will become eligible to come into the market with the release of more locked-in shares - about 1.8 billion in fact. Founder Mark Zuckerberg does not become eligible to sell his stock until November.

So far it’s not known who actually among the inside investors actually sold, but the unusually large volumes in the stock by mid-day indicate that some of them must have sold.

Again, it is quite possible that the selling may also have been triggered off by existing investors who may have feared a mass mayhem kind of situation.

Even without the locked-in shares Facebook had 420 million shares out in the market. Traders have been suggesting going short on the stock as a safe and sound strategy but for a stock like Facebook, shorting charges might not be worth the effort to do it.

There are a few adventurers out there however who think that the stock is at the right value for going long on it. They even predict that the stock has the potential to move up to $26 or $27, if those going short get snagged and then find themselves having to scramble to cover their short positions.

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Investors have been concerned about Facebook's ability to keep increasing revenue and make money from its growing mobile audience.

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