UPDATE – Facebook shares jumped 13% last night despite fears that the lockout surrounding on almost 800 million shares was coming to an end allowing investors to sell. Analysts had been expecting the end of the lockout to lead to a sharp fall, but instead markets reacted by sending Facebook stock in the opposite direction and they closed at $22.36.
The WSJ said that the “sharp gain in stock price on a sharply lower day for the market goes against conventional thinking”. Conventionally an increase in the supply of shares should ease demand and ultimately reduce the share price.
However, it appears that despite all the issues surrounding Facebook, and whether it can successful monetize its platform, there is still a strong demand for its stock among investors who were not able to get a slice of the social networking firm when it went public in May.
“If you have people betting on a big downturn, and it doesn’t materialize, the next move is up,” said Steve Sosnick, equity risk manager at Timber Hill, the market-making unit of Interactive Brokers Group Inc. IBKR -1.33% He added that investors unwinding bearish bets on the stock might be contributing to the rally.
While selling by insiders seemed muted Wednesday, some early venture-capital investors in the social network distributed shares to their limited partners. According to filings, Andreessen Horowitz, the venture-capital firm co-founded by Facebook board member Marc Andreessen, distributed 4.6 million shares to its limited partners, a large portion of which came from the firm’s investment in Instagram, a mobile photo-sharing startup acquired by Facebook this year, the WSJ reported.
Andreessen, who still personally holds around 300,000 Facebook shares, did sell a small amount of Facebook stock yesterday. However, his firm still holds 3.5 million Facebook shares, which it said it plans to hold on to – for now at least.
WEDNESDAY 1500 – USA Today notes that the day Facebook investors have been dreading since the company went public back in May has finally arrived. Today is the day when Facebook staff can sell their shares. However, initial reaction is not what markets had expected as shares in Facebook leap by more than 10%.
We saw this process begin at the start of that last week when Facebook’s chief operating officer Sheryl Sandberg sold $7.4m (£4.7m) of Facebook shares. That was the earliest opportunity Facebook executives had to offload stock.
Today, however, is when 777 million more shares of the Facebook are unlocked and available for sale. These are the ones belonging to the bulk of ordinary staff who have waited for years for this day to come around.
These will be added to the 1.3 billion shares of Facebook stock trading, of its 2.2 billion shares outstanding, that already are giving Wall Street a case of indigestion.
“For employees, there’s a lot of wealth tied up in this company,” says Daniel Bradley, professor of finance at the University of South Florida. “Employees might be worth a lot on paper, but there’s not much in the bank account.”
This looming opportunity for employees to sell has been unnerving Facebook investors since the company went public May 18. Lockup period expirations are customary with initial public offerings, USA Today reports.
Stocks usually fall by several percent when staff are free to sell. That hasn’t happened so far. In fact what we are currently seeing is Facebook stock leap by more than 10% pushing them as high as $21.93. The sharp rise comes after Facebook shares languished mostly below $20 for months and at one point hitting an all time low of $19.87.
That could mean that fewer than expected Facebook staff will sell their shares as happened with Yelp.