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.
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