Facebook (NASDAQ:FB) braces for biggest lockup wave More than 800 million post-IPO shares coming to market this week
Facebook braces for biggest lockup wave More than 800 million post-IPO shares coming to market this week
SAN FRANCISCO — Facebook Inc. will face its own fiscal cliff of sorts this week, when about 800 million of the company’s shares held by insiders become eligible for sale.
Those Facebook FB -1.05% shares are set to emerge from a post-initial public offering lockup on Wednesday, making them available for sale in the open market and potentially doubling the size of the company’s share float.
It’s the biggest post-lockup wave since the company went public in May. But analysts disagree on the market event’s impact, given improving investor sentiment on Facebook and the fact that the stock already has survived two similar jolts.
“I think it will have a massive impact, and already has,” Wedbush analyst Michael Pachter told MarketWatch last week. He noted Facebook’s share loss since its Oct. 23 earnings report, “and that’s because of this overhang.”
Facebook shares jumped 19% a day after its report, but the stock later declined by as much as 17%, slipping below $20. However, the stock rallied 4.5% to close up to $20.07 Monday.
The lockup expiration on Wednesday will add a little more than 800 million shares to Facebook’s existing share float of about 921 million, according to the company’s most recent filings with the Securities and Exchange Commission.
“It’s impossible to know whether VCs [venture capitalists] and other early investors will sell, but Peter Thiel’s sale of more than 80% of his stock is a sign that others may consider doing the same,” Pachter added.
Thiel, the PayPal co-founder who was one of Facebook’s first investors, also became the first insider to sell a big chunk of his shares in August.
Two earlier lockup expirations over the last three months each triggered a selloff. The first wave of about 270 million unlocked shares in mid-August was among the factors that pushed the stock down to its record low of $17.55 in early September.
The second lockup wave of shares (mostly held by Facebook employees) caused the stock to slide last month, slipping below the $19 mark just days before the third-quarter earnings report. Read Tech Investor: Facebook stock costs will wipe out profit.
Yet the negative impact of this week’s massive post-lockup wave could be offset by another factor: Wall Street sentiment on Facebook has notably improved. That’s largely because of the Oct. 23 earnings report, which was highlighted by a big jump in revenue and signs of a growing mobile-ad business. At least three brokerages upgraded the stock to buy ratings following the results.
“While caution is certainly warranted on likely selling pressure around the upcoming lockup dates, we are focusing on fundamentals and recommend the shares at current levels,” Justin Post of Bank of America/Merrill Lynch wrote in a note upgrading Facebook, setting a $31 price target on the shares.
Pachter maintained an outperform rating on the stock following the report, saying the social network is “well positioned to capture additional advertising market share.”
Topeka Capital’s Victor Anthony told MarketWatch that he expects Facebook’s stock to “recover meaningfully, all else equal” after all the lockup expirations, though he said those expirations “will certainly put further pressure on the stock.”
“But with a big part of the bear thesis thoroughly refuted with the third-quarter earnings results, longer-term investors who seek attractively priced stocks relative to growth and with the prospects of sustainable value creation should view the pullback as an opportunity to go long the shares,” Anthony commented.
Morningstar analyst Rick Summer said there could be volatility, while portraying the lockup expiration as a temporary setback that could offer investors an opportunity to own the stock. “If it does create a selloff, it’s going to create an extremely attractive entry point for investors who are looking into getting into a franchise Internet company at a discount,” he added. “You get below $19 and it’s very, very attractive.”