Facebook has had more than its fair share of problems since becoming a public company. Now a lock-up period is about to expire, potentially flooding the market with 270 million shares. This may not matter to shareholders though.
Wall Street is a forward-looking animal, and more than likely has anticipated the lock-up period ending Thursday, and a flood of shares hitting the market for some time now. Over the past month, Facebook shares have fallen 33.66 percent, compared to a 3.73 percent gain in the Nasdaq. A good portion of that 33 percent drop can be attributed to its first earnings report. (Read More: Facebook Earnings Hit Target, but Worries Persist.) Some of that may also be attributed to the knowledge that the lock-up period is about to expire.
S&P analyst Scott Kessler upgraded Facebook based on the fact too much is being made about the lock-up expiring.
“We do not expect early employees and investors will be aggressive sellers of FB shares at current levels, after the stock has fallen more than 50 percent from the intra-day high set on May 18, the IPO date,” Kessler said in his note. He rates Facebook a “buy,” with a $25 price target.
Thursday isn’t the only lock-up for Facebook shares. Over the next nine months, more than 1.8 billion shares will be eligible for trade, as Facebook staggered the lock-up schedule.
Much made been made about Facebook’s problems since becoming a public company. It started with its initial public offering, which was botched by the Nasdaq and its lead book-runner, Morgan Stanley.
The major concern facing the business is how to monetize its mobile audience, which now accounts for more than 50 percent of all its users. It has come under scrutiny for having millions of fake accounts (which the company acknowledged) and concerns over ad business, using “bots” to goose ad sales (which the company denies). (Read More: Does Facebook Have a “Bot” Problem?)
There are several reasons for Facebook shares to continue falling that have to due with the fundamentals of the business. The lock-up expiring when shares are down more than 50 percent from its IPO price isn’t going to add fuel to the fire.
—Written by TheStreet.com’s Chris Ciaccia
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