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Facebook sinks to new low as insiders are allowed to sell shares

August 16, 2012|By Jessica Guynn
  • A news ticker in New York's Times Square announces the falling price of Facebook stock.
A news ticker in New York's Times Square announces the falling price… (Mario Tama / Getty Images )

Facebook's stock sank to a record low Thursday as some of the social networking company’s investors got their first shot since the initial public offering to sell shares.

Shares traded as low as $19.69 before coming to rest at $19.87, down $1.33 or more than 6%. More than 156 million shares traded hands, more than five times the average volume.

The spike in trading amplified fears that insiders were fleeing a company that, before its IPO in May, was one of Silicon Valley’s brightest. Shares of the IPO were priced at $38; since then the stock has lost nearly half its value amid concerns over slowing revenue growth and its future moneymaking potential, particularly on mobile devices.

It will be days before insiders have to disclose if they sold stock. But investors with a combined 271 million shares could have dumped their holdings Thursday when the first in a series of lock-ups expired. Among those who became eligible to sell shares: investment bank Goldman Sachs and venture capital firms Accel Partners and Greylock Partners.

“Certainly some of them sold. The question is how many of them sold and how much of their holdings they sold,” Pivotal Research analyst Brian Wieser said.

But, he said, “The big issue is, was and always will be November.” That’s when about 1.2 billion shares from insiders will be eligible to be sold.

Kevin Landis, chief investment officer at Firsthand Capital Management in San Jose, bought Facebook shares late last year on the private market. He paid $31.50 apiece.

“Lockup expirations have a lot to do with how Facebook will trade in the next couple of days and almost nothing to do with what the company will be worth a year or two from now,” Landis said.

The lockup on Firsthand’s shares expires in November. Landis says he doesn’t yet know if he will sell.

“Whatever happens this week is a dress rehearsal for November. That question is not going to be put to us this week. But in November that question will be put to us pretty hard,” Landis said.

It has been a dramatic reversal of fortune for Facebook, which went from having one of history’s most hotly anticipated IPOs to one of the most botched. Its market value has plummeted by almost $50 billion.

“I think Facebook has a lot of things going for it. Unfortunately the stock price has not been one of them,” S&P Capital IQ analyst Scott Kessler said.

All told, more than 1.7 billion new shares will be released onto the market over the next nine months, said Sam Hamadeh, CEO of PrivCo, which researches privately held companies. He says the share value of the lockup expirations at about $20 a share is nearly $35 billion worth, roughly equivalent to the entire market value of companies such as Starbucks and Target.

“There simply is no relief on the horizon for Facebook stockholders,” Hamadeh said. “It will get worse before it gets better.”

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