Facebook shares may see more turbulence

Facebook stock dropped nearly 4 percent on Wednesday as the stock market re-opened for the first time since some of the company’s top officers and other employees became eligible to sell about 230 million shares that were “locked up” by trading restrictions after the company’s IPO. But the bigger hit could come in mid-November.

That’s when additional restrictions will expire on employees and early  investors, and up to 777 million more shares could come on the market. And another 156 million will be eligible for sale in mid-December.

Despite recent gains that followed reports of improved ad sales, Facebook’s shares are still well below the stock’s $38 IPO price. That means employees — and other investors — have lost millions of dollars in paper wealth since May. Critics have questioned why Facebook structured the lock-ups to allow so many additional shares to be sold in the first year after the IPO.

Some analysts, however, say they expect the effect of the lockup expirations to be muted by steps Facebook has taken in recent weeks. For example, the company has indicated that CEO Mark Zuckerberg won’t be selling any shares this year.

In addition, Wells Fargo analyst Jason Maynard noted that Facebook has said it won’t sell about 101 million shares that it is withholding from employees to cover their personal income tax obligations. Instead, the company said it will pay the taxes with cash and keep those shares off the market.

Even so, Sterne Agee analyst Arvind Bhatia said in a recent report, the lock-up expirations are a “near-term” liability for the stock.

 

Brandon Bailey Brandon Bailey (350 Posts)

Brandon Bailey covers Google, Facebook and Yahoo for the San Jose Mercury News, reporting on the business and culture of the Internet.