{{The day Facebook (FB) investors have been dreading since the company went public is here.}}<\/p>\n
Wednesday is when 777 million more shares of the No. 1 social-networking company are unlocked and available for sale. The bulk of rank-and-file employees who put their financial lives on hold hoping to sell and lock in gains finally get their chance.<\/p>\n
These will be added to the 1.3 billion shares of Facebook stock trading, of its 2.2 billion shares outstanding, that already are giving Wall Street a case of indigestion.<\/p>\n
“For employees, there’s a lot of wealth tied up in this company,” says Daniel Bradley, professor of finance at the University of South Florida. “Employees might be worth a lot on paper, but there’s not much in the bank account.”<\/p>\n
This looming opportunity for employees to sell has been unnerving Facebook investors since the company went public May 18. Lockup period expirations are customary with initial public offerings.<\/p>\n
Employees, officers and early investors are typically required to wait several months before they can sell, preventing an avalanche of selling pressure to beat down a fledgling stock.<\/p>\n
Even with lockups in place, additional selling pressure often hurts stocks. Stocks usually fall 2% after an IPO lockup is lifted, says Jay Ritter, professor of finance at the University of Florida.<\/p>\n
But this is potentially even more significant for Facebook because of the:<\/p>\n
\u2022 {{Poor track record of past lockups.}} This latest unlock of shares is the third since the company went public. After the first lockup expired in mid-August, shares fell 6% to set a new all-time low at the time of $19.87. When the lockup expired the second time in late October, shares fell again, by 3% that time.<\/p>\n
\u2022 {{Massive size.}} This latest lockup releases far more shares than the two previous combined and is the biggest one scheduled for the stock. “Given the size, just from a pure economic standpoint, it should matter,” Bradley says.<\/p>\n
\u2022{{ Sentiment.}} Investors have already been sour on Facebook stock, and the additional supply doesn’t inspire reason to buy. Shares are down nearly 50% from their IPO price at Tuesday’s close of $19.86.<\/p>\n
Despite the fears, though, the lockup is hardly a secret and large investors seem to be willing to buy Facebook at the $18.50 a share range, giving the stock some downward support, says Francis Gaskins of IPODesktop Premium.<\/p>\n
Facebook’s reaction will hinge on whether more or fewer employees than expected sell. Shares of online review site Yelp actually rose more than 20% in late August after a lockup because selling was smaller than anticipated, Bradley says. <\/p>\n
The same could happen at Facebook, while it’s unlikely, Bradley says. “To a certain extent, (the reaction) is based on market anticipation,” he says.<\/p>\n","protected":false},"excerpt":{"rendered":"
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