Facebook second-worst IPO performer after share lock-up

Facebook Inc.'s 6.3% drop yesterday, after the end of restrictions on share sales by its biggest investors, was the second-largest post-lock-up decline among companies that have gone public since January 2011.
MAY 29, 2013
By  Bloomberg
Facebook (FB) Inc.'s 6.3 percent drop yesterday, after the end of restrictions on share sales by its biggest investors, was the second-largest post-lock-up decline among companies that have gone public since January 2011. Only social-game maker Zynga Inc. (ZNGA) tumbled more, losing 7.9 percent, on the first day that insiders could start selling their stakes, data compiled by Bloomberg show. That was the largest one-day post-lock-up descent among the 20 biggest initial public offerings since January 1, 2011. The slump yesterday left Menlo Park, California-based Facebook at a record low after a 60 percent increase in the number of shares available for trading. Under restrictions worked out with IPO underwriters, early investors agree not to sell their holdings for a preset period after a market debut to keep from flooding the market with shares. Facebook's decline reflects concern that more sales will follow in the coming months as additional lock-ups expire and as the company struggles to wring sales from a growing customer base, said Rory Maher, an analyst at Capstone Investments Inc. “Anytime you have a lot of shares come out on the market like that, it's going to put some pressure on the stock,” Maher said. “They're still figuring out the best way to optimize their core business. And they haven't quite done that yet.” Facebook, the world's largest social-networking service, advanced 1 percent to $20.06 at 9:32 a.m. in New York. Lock-ups end The shares freed up yesterday represent 14 percent of the 1.91 billion that will become available for sale in the coming nine months. The next expiry comes between Oct. 15 and Nov. 13, when restraints are removed on about 243 million shares. Lock-up expires on about 1.2 billion shares on Nov. 14, and for 149.4 million shares a month later. A final round comes May 18, 2013, with 47.3 million shares becoming available. Early Facebook investors such as DST Global Ltd., Goldman Sachs Group Inc. (GS), Elevation Partners and Accel Partners could start selling part of their holdings yesterday, Menlo Park, California-based Facebook has said in filings. The restriction was lifted for early investors, excluding Facebook Chief Executive Officer Mark Zuckerberg, who sold part of their holdings in the IPO. Through yesterday, Facebook shares had lost 48 percent since the May 17 IPO. Even so, some investors probably aren't convinced that the stock won't fall further, said Erik Gordon, a professor at the Stephen M. Ross School of Business at the University of Michigan. Yelling 'fire' “It might not be rational for the shareholders to sell all at once, but when someone in a theater yells 'fire,' people don't act rationally, they stampede to the exits,” he said. “It might be fatal to your career to be viewed as the last chump to get out.” Microsoft Corp. (MSFT), based in Redmond, Washington, will probably hang on to its stake after the lockup-ban lifts, a person with knowledge of the matter said on Aug. 10. Microsoft views Facebook as a strategic partner in the combat against Google Inc. (GOOG), rather than as a near-term moneymaker, said the person, who requested anonymity because the plans are private. Other investors have been preparing for potential sales. Director Peter Thiel, who sold in the IPO, has given himself added flexibility to unload more holdings, according to a regulatory filing. Thiel, one of Facebook's earliest investors, converted more than 9 million shares to Class A from Class B. Class A shares are easier to sell on the public markets. Sales slowdown Facebook has grappled with concerns about its valuation after reporting sales growth of 32 percent in the second quarter from the year-ago period, down from 45 percent in the first quarter and 55 percent in the fourth quarter. The second-quarter gain was dwarfed by a surge in spending on marketing and sales, which ballooned to $392 million. Part of Facebook's challenge is making money from the growing slice of users who access the social network over mobile devices. During the second quarter, the number of ads delivered in the U.S. dropped 2 percent from a year earlier even amid an increase in total daily users.

Latest News

LPL adds $600M UBS team in Tennessee
LPL adds $600M UBS team in Tennessee

The firm's latest additions, led by a second-generation financial advisor, are striking out via its Linsco employee advisor channel.

eMoney supports focused financial planning with enhanced needs analysis
eMoney supports focused financial planning with enhanced needs analysis

The Fidelity-owned fintech aims to help advisors connect with mass market and mass affluent prospects with single-goal conversations.

Trump SEC pick Paul Atkins grilled by Democrats in early political test
Trump SEC pick Paul Atkins grilled by Democrats in early political test

The prospective chair of the agency has pledged to shed conflicted interests and "return common sense to the SEC."

Finra moves to boot Alpine Securities, same firm that claims the regulator can’t
Finra moves to boot Alpine Securities, same firm that claims the regulator can’t

'If I were on the side of Alpine Securities, I’d put all my eggs in the federal court,' one attorney said.

CFP Board floats new procedural rules around bankruptcy, misdemeanors
CFP Board floats new procedural rules around bankruptcy, misdemeanors

If approved, the proposed revisions would achieve outcomes similar to the existing process while reducing the burden of oversight.

SPONSORED Retirement plan balances are flourishing. Why are so many advisors missing out on a $3 trillion opportunity?

Participants who receive professional 401(k) advice see higher returns on average, net, than those who don't.

SPONSORED Focus on clients, not compliance – why Gary Corderman found his fit with Farther

This wealth management platform finally delivers on the technology promises other firms couldn't - giving advisors a better way to scale and serve