Facebook hits new low as IPO lock-up ends

17 Aug 2012, 9:22 am   -   Source: AAP
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Facebook's share price fell to a new low as an IPO lock-up ends allowing early investors to sell. (AAP)

Facebook's share price fell to a new low as an IPO lock-up ends allowing early investors to sell. (AAP)

Facebook's share price has fallen below $US20 after a ban preventing some early investors and insiders from dumping their shares expired.

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Facebook's stock has plunged to a new low as some of the social networking leader's early backers got their first chance to sell their shares since the company's initial public offering went awry.

Analysts interpreted the unusually high trading volume on Thursday as a clear sign that at least a few of the insiders were seizing on a fresh selling opportunity. That is stirring a debate over whether they're simply locking in long-awaited gains on investments made many years ago or bailing out of a company that has lost its lustre.

A breakdown on just how many major Facebook Inc shareholders sold their stock probably won't be available until next week at the earliest. Securities regulations give them at least three days before they have to disclose such transactions.

The information is important "because if you are an investor who has been sitting on the sidelines waiting for a good time to buy the stock, you might decide to stay on the sidelines for a little longer after seeing which insiders decided to sell their stock", CapStone Investments analyst Rory Maher said.

All told, investors who owned a combined 271 million Facebook shares could have sold their holdings on Thursday with the expiration of a ban known as a lock-up period. The restrictions were imposed on a group of venture capitalists, companies and Silicon Valley cognoscente who invested in Facebook during its formative years and sold some of their holdings three months ago when the company went public at $US38.

The highly anticipated IPO had valued the company at $US104 billion ($A99.39 billion), similar to those of Amazon.com Inc and Pepsico Inc.

The shares have plunged by nearly 50 per cent since then amid concerns about whether Facebook is destined to become a passing fancy and worries about whether it will be able to sell more advertising on mobile devices as users gravitate there.

Facebook's stock traded as low as $US19.69 before bouncing back slightly. The shares closed on Thursday at $US19.87, down $US1.33, or more than 6 per cent. The previous low during the day was $US19.82 and the previous low for a close was $US20.04, both reached August 2.

More than 156 million shares were traded, more than five times the stock's average volume over the past month. Trading in the overall market was lighter than usual.

The Facebook investors eligible to sell their shares on Thursday included venture capital firms Accel Partners and Greylock Partners; investment banker Goldman Sachs Group Inc; software maker Microsoft Corp; Zynga Inc chief executive Marc Pincus; LinkedIn Corp chairman Reid Hoffman; and former PayPal CEO Peter Thiel.

If there was mass selling within this group, Facebook's stock could decline further because the market would be flooded with nearly two-thirds more shares.

Given that most of these investors put their money into Facebook five to eight years ago, they probably were eager to sell, said Sam Hamadeh, CEO of PrivCo, which researches privately held companies.

"A lot of people have been waiting," Hamadeh said. "Facebook was expected to go public a long time ago."

Despite the sharp drop in Facebook's market value during the past three months, the early investors can still reap huge windfalls by selling at the current price.

For instance, Thiel invested $US500,000 in Facebook in 2004, the year CEO Mark Zuckerberg began the site in a Harvard dorm room.

After selling 16.8 million shares for $US640 million at the time of the initial public offering in May, Thiel still owned nearly 28 million shares worth about $US560 million at Thursday's trading prices.

Accel Partners invested $US12.7 million in Facebook in 2005. The firm sold nearly 58 million shares for $US2.2 billion as part of Facebook's IPO and still owned nearly 144 million shares worth about $US2.9 billion.

It wasn't known how many of those shares could have been sold on Thursday, and whether any of them were.

Because those investors had put up little compared with the shares' value today, "you can understand why they would want to take some of their money off the table now", Maher said. "But at the same time, you have to wonder if they're thinking that Facebook isn't much of a bargain anymore."

Hamadeh believes the venture capitalists who invested in Facebook realise it's a "fool's game" to wait for a better price on the stock.

On the flip side, other key investors seem unlikely to sell additional shares right away. Microsoft, which invested $US240 million in Facebook in 2007, relies on Facebook's social network to help bring more traffic to its Bing search engine, making it less likely that it would risk antagonising Facebook executives by bailing out. The software company also doesn't need the money, as it is already is sitting on $US63 billion in cash.

A Microsoft spokesman declined to comment on Thursday.

The selling shackles will come off of an additional 1.66 billion locked-up Facebook shares during the next nine months to place more potential pressure on the stock. One of the biggest tests will come in November when about 1.2 billion insider shares will be eligible for sale.

The freed-up shares will include those owned by Zuckerberg, the Facebook CEO and founder who sold 30 million shares for $US1.1 billion in the May IPO to cover his taxes.

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