Facebook stock leaps 12.6% as share lockup expires
By Alexei Oreskovic, Reuters
November 16, 2012, 12:14 am TWN
SAN FRANCISCO -- Shares of Facebook Inc. jumped nearly 13 percent on Wednesday, as investors breathed a sigh of relief that expiring trading restrictions on a huge block of shares failed to trigger an immediate wave of insider selling.
"While the lockup is expiring, there is nothing requiring anybody to sell," said Tim Ghriskey, chief investment officer at Solaris Group in Bedford Hills, New York. "Given the low price, these long-term holders are deciding to hold the stock, and that is lifting it here as the fear of the expiration subsides."
Roughly 800 million Facebook shares were eligible for sale on Wednesday after restrictions on insider selling were lifted on the biggest block since Facebook's May initial public offering.
The lockup expiration greatly expands the 921-million-share "float" available for trading on the market until now.
"We've seen this before with other lockups. People sell them leading up to the lockup period expiring, and then they have a bit of a relief rally," said Ryan Jacob, chief executive of the Jacob Funds, which does not own Facebook shares.
In August, shares of the online reviews website Yelp Inc. surged by more than 20 percent on the day that insider trading restrictions expired. That stock's rally was boosted as short-sellers scrambled to cover their positions when the expected flood of selling failed to materialize, say analysts.
Facebook shares finished Wednesday's regular trading session up 12.6 percent at US$22.36 on the Nasdaq, with trading volume for the stock more than four times the average during the past 50 days.
The world's No. 1 online social network became the only U.S. company to debut with a market value of more than US$100 billion. But its value has dropped nearly 50 percent since the IPO on concerns about money-making prospects over the long term.
Insider trading lockup provisions started to expire in August, and the rolling expirations have added to the pressure on the stock.
Restrictions on insider selling have expired in waves. A limitation on more than 200 million shares expired on Oct. 29.
Cost of Shorting
Pivotal Research Group analyst Brian Wieser said he did not expect Facebook insiders to sell all of their shares as the lockups expired.
"I would expect heavy volumes over the next few weeks, but not undigestible volumes," said Wieser. By his estimate, roughly 486 million of the nearly 800 million newly freed Facebook shares will be sold.