The Daily Ticker Blog

Facebook Insiders Can Now Shovel Stock Out the Door

Henry Blodget

The first of three major "lock-ups" for Facebook stock expired today, October 29th, which means that a lot of new stock is available to be sold when the markets reopen.

In the accompanying interview, my colleague Aaron Task and I discuss Facebook's latest earnings report with Sterne Agee analyst Arvind Bhatia who estimates that Facebook could soon make $1 billion in revenue from mobile advertising.

The second lock-up, which is much larger, will hit on November 14. The third will hit December 14.

Additionally, several of Facebook's senior executives, including COO Sheryl Sandberg, have received the huge restricted stock grants they have earned over the past few years and converted their shares into tradable common stock. So there's a possibility that some of these executives may soon begin selling stock, as well.

Related: Facebook Earnings: The Beat Heard 'Round the World

First, the broad numbers:

  • Facebook's "float" is currently 692 million shares (stock available to be sold in the public market).
  • As of today, an additional 234 million shares (and options) can be sold.
  • On November 14th, an additional 777 million shares will become available for sale
  • On December 14th, an additional 156 million shares will become available for sale
  • On May 18th, 2013, an additional 47 million shares will become available for sale

All in, nearly 1.2 billion new shares will become available for sale in the next 6 weeks, which is nearly twice the current float. By mid-December, Facebook's float will be 1.9 billion shares.

Many of the folks who own these shares—former employees, current employees, and early investors—have been holding the stock for a long time and are presumably eager to cash out of at least a portion of their holdings. So there would seem to be a good chance that a lot of this stock will hit the market in the next couple of months.

Related: Facebook Hits 1 Billion Users: What's Next?

Those who believe in market efficiency will argue that, because everyone has known about these lock-up releases, Facebook's stock price has already taken them into account. That's possible. But it's also possible that one or more of these releases will be accompanied by news (or inference) that big Facebook insiders are dumping almost every share they own, the way Facebook board member and early investorPeter Thiel did in the first lock-up release. That news clobbered the stock last time, and it could clobber it again this time.

Facebook's Employee Stock Units Have Now Vested

Today's lock-up release followed the vesting of Restricted Stock Units that most Facebook employees who joined the company before 2011 were given when they joined. Facebook converted these units into "Class B shares" and then withheld about 45% of the shares to pay the employees' income taxes (just the way the company would withhold taxes on cash compensation).

These units converted into a total of 225 million shares and vested at a price of $23.21 per share.

Thus, the vesting of stock units resulted in an immediate compensation payout of $5.2 billion to Facebook employees who joined the company before 2011, of which $2.3 billion was withheld.

All of this stock is now available to be sold.

Some of Facebook's senior executives received huge payouts in this conversion. These executives included:

  • Sheryl Sandberg, COO: 34 million shares worth $790 million at conversion. 15 million of these shares were withheld. Sandberg converted the remaining 18 million to "Class A" common stock that can now be sold.
  • David Ebersman, CFO: 4.2 million shares worth $97 million at conversion. Ebersman retains 2.2 million shares of Class A common stock that can now be sold.
  • Theodore Ullyot, General Counsel: 2.5 million shares worth $58 million. Ullyot retains 1.4 million shares that can now be sold.
  • David Fischer, VP of Marketing: 1.1 million shares worth $26 million. Fischer retains 568,282 shares that can now be sold.
  • Micheal Schroepfer, VP Engineering, ~3 million shares worth $70 million. Schroepfer retains 1.5 million shares that can now be sold.
  • David Spillane, Chief Accounting Officer: .7 million shares worth $16 million. Spillane retains 416,479 shares that can now be sold.

Importantly, none of these senior executives have announced plans to sell any of these shares. All of them will only be allowed to sell under so-called "10b-5" sales plans which set up regular sales in advance. It is possible that some or all of these executives have already set up such plans and will start selling their shares now, but if so, the plans have not yet been filed publicly.

Related: Facebook Faces Another Blow: Insider Peter Thiel Dumps His Shares

Facebook's Market Value Is Now Much Larger Than Many People Thought

Importantly, the vesting of all of the Restricted Stock Units has caused Facebook's overall share count to increase significantly. Facebook now has about 2.5 billion shares outstanding. Thus, at $22 a share, Facebook is valued at about $55 billion.

This value is much higher than the value shown on several finance web sites at several points over the last five months. For some reason, these sites did not take into account the vast amount of new stock that would be issued when the restricted stock units vested.