Facebook Inc. investors, already grappling with concerns about the company's growth prospects, are bracing for the biggest increase in the number of shares free for trading since the company went public in May.
Restrictions lift today on 804 million shares held by former employees and those who sold at the initial public offering, almost doubling the total available for trading, according to a regulatory filing. The bans on sales are put in place to prevent shares from flooding the market immediately after an initial public offering. Restrictions lifted on smaller numbers of shares in August and October.
Facebook, operator of the world's most popular social-networking service, has lost about half its value since going public as the number of shares rose and investors fretted about the company's ability to boost mobile-advertising sales.
“It has been and will be important to investors without a doubt,” said Scott Kessler, an analyst at S&P Capital IQ, who has a hold rating on the stock and doesn't own it. “This is obviously something that people have been thinking about and concerned about.”
Two more rounds of lockup expirations remain through May. Facebook will free up about 156 million shares for stockholders, except Chief Executive Officer Mark Zuckerberg, who sold in the IPO. The company will free up another 47.3 million shares May 18. This lot includes stock held by Russia's DST Global Ltd.
Shares held by Zuckerberg aren't part of the tally because he has said he won't sell before September of next year.
Ashley Zandy, a spokeswoman for Facebook declined to comment.
Facebook, based in Menlo Park, California, fell 1.1 percent to $19.86 at the close yesterday in New York. The shares have declined 48 percent since the IPO.
The new lockup expiration may present only “limited downside,” Brian Wieser, an analyst at Pivotal Research Group, wrote in a research note this week. Many investors probably won't sell as soon as possible, given recent stock price declines, he said in an interview.
“While the number of shares is significant, the market should be capable of handling the trading that results from the lock-up expirations,” Wieser said.
Facebook, which makes most of its money from advertising, reported sales rose 32 percent to $1.26 billion in the third quarter, matching the growth of the second quarter. That's a slowdown from 45 percent growth in the first quarter and 55 percent in the fourth quarter.
Still, third-quarter revenue topped estimates of $1.23 billion as Facebook benefited from efforts to sell advertising on mobile devices, where users are increasingly accessing the service. The results from new ad services show promise, improving the company's growth prospects, said Colin Sebastian, an analyst at Robert W. Baird & Co.
“We recommend investors take a longer-term view than just near-term lockup issues,” Sebastian said. “We look at the fundamentals and see Facebook as becoming a legitimate ad platform over time.”
Bloomberg News
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