Expiration of locked-in shares of Yelp Inc (NYSE:YELP)on Wednesday, are set to release a flood of shares into the market and are expected to hammer down the already battered shares.
Yelp, which makes it revenues by offering product reviews on its site, has been one of the better performing social media stocks in the market. About 52.7 million shares will be freed up at the end of the 180-day lock-in period and early investors such as Chairman Mac Levchin and Chief Executive Jeremy Stoppelman will become eligible to sell their shares if they want to.
The expiration will increase the number of Yelp shares eligible for trading by more than seven times, though it is not necessary that all those shares have to enter the market.
Shares in the company have fallen 26 percent in the last two weeks and on Tuesday it fell 1.7 percent to $17.95 in after-hours trading.
Option traders have already taken positions anticipating a further fall in prices. On Monday, the total number of put contracts outstanding topped the number of call options for the first time, with total puts climbing to 33,561 contracts and total outstanding calls reaching 32,520.
Despite the declines the stock is still trading about 27 percent above its IPO price of $15 a share in March.
Compared to its peers such as Facebook Inc(NASDAQ:FB), Zynga Inc(NASDAQ:ZNGA) and Groupon Inc(NASDAQ:GRPN) the company has maintained its steady performance.
Expiration of lock-up shares usually places a downward pressure on the share prices and this is not an unusual phenomenon. Facebook, whose locked-in shares are being released in phases, saw huge losses as early investor preferred to sell part of their holdings, earlier this month.
Groupon shares slipped nearly 9 percent when its lock-in expired.