Will Facebook Employees Line Up to Cash Out?
In August, Facebook's IPO backers and founders were given the chance to unwind their stake in the struggling stock.
Facebook employees: Now it's your turn.
On Monday, more than 270 million shares of "FB" will be eligible for sale, the majority coming from restricted stock and other options held by Facebook staffers.
Those shares are part of a larger block of more than 1 billion shares being "unlocked" by Facebook in the coming weeks and available for sale on the public market. For a company whose public trading float stands at roughly 630 million shares, according to Reuters, it's a sizeable glut of supply that some analysts and investors worry could drag down the stock. (Read More: Facebook Woos Back Wall Street's Love With Mobile)
"I would imagine that half of that stock will get sold," Michael Pachter, a Wedbush research analyst who covers Facebook, told CNBC. "I think a lot of people will step in [to absorb some of the demand], but I suspect the stock will drop 10 percent or so lower."
If that's the case, such a drop would come just as Facebook's current investors were beginning to see the light at the end of the stock's volatile ride.
On Tuesday afternoon, the social giant finally made back some ground lost following its IPO debacle, reporting solid third-quarter earnings. Those results were a bright spot to an otherwise lackluster year for the social giant. And perhaps most importantly, earnings results finally showed investors the company could overcome roadblocks to monetize its mobile platform. Facebook shares rallied more than 20 percent following the results. (Read More: Facebook Revenue Jumps 32% Amid Gains in Mobile.)
Despite the rally, Facebook's stock is trading at roughly $23, well below its $38 May IPO price.
Facebook expedited the date for employee sales by roughly two weeks; the date was previously slated for Nov. 14. Facebook reiterated on its earnings call it would withhold 120 million shares from its employee stock units, shares that will be used to cover roughly $2.4 billion in taxes.
Investors see that decision as a positive: Facebook will be taking those shares out of circulation (not unlike a stock buyback) meaning those shares will never hit the market. (Read More: Investor Peter Thiel Sells Facebook Shares)
"This means employees won't be forced to sell to meet their tax liabilities," said Mark Hawtin, London-based portfolio manager at GAM, who holds Facebook shares. "It shows the company has been thinking about the stock price."
Other analysts are hopeful that the recent earnings trend could provide enough confidence to overcome any potential lockup overhang.
Evercore's Ken Sena told CNBC that while it's difficult to predict the impact of the lockups, "as long as the valuation is compelling I'm confident there will be investors to step in and buy the stock." Sena currently has an "equal weight" rating on shares (the equivalent of a "hold" recommendation).
In addition to price fundamentals and lockup supply, Pachter said selling could be aggravated following the presidential election as investors look to take profits ahead of a looming increase in capital gains taxes currently part of the Obama budget. Capital gains, currently taxed at 15 percent, are set to be taxed at the same rate as ordinary income — up to 35 percent — as of next year. (Read More: Stark Differences in Ryan, Romney, Obama Tax Plans)
In September, Facebook's largest shareholder, CEO Mark Zuckerberg, disclosed in SEC filings that he had pledged not to sell any of his stock for at least one year. In the same filing, board members Marc Andreessen and Donald Graham disclosed that they would sell enough shares to cover certain tax obligations, but nothing more.
For the remaining thousands of Facebook employees and insiders, the question remains: sell while you can, or wait it out?
A Facebook spokesperson declined to comment.