Expect a not-so-good day for Facebook (FB) shares on November 14. The third and largest lock-up period will release up to 1.2 billion shares, including 60 million shares owned by Mark Zuckerberg. Although the founder claims he will not sell his shares for at least a year, we can not hold a man to such a proclamation when hundreds of millions of dollars can be pocketed.
The company has 2.7 billion shares outstanding, more than Apple (AAPL), Google (GOOG), and even International Business Machines (IBM). With as much as 44.4 per cent of the company's shares ready to be sold by insiders and employees on November 14, expect a very volatile day to the downside. Don't be surprised if the selling pressure triggers trading halts.
The shares last had a major lock-up period expiration on October 29. However, hurricane Sandy pushed the first trading day to October 31, which had the shares fall 5.28 per cent right at the open. The stock has continued to drop since and is 3.51 per cent lower since that opening minute.
The first lock-up period was August 16 and released 271 million shares. The shares fell 3.58 per cent right at the open and finished 6.27 per cent lower.
The final two lock-up periods will release a total of almost 200 million shares on December 14 and May 18, 2013. If history is any trend, these two days could send shares down about 3 per cent if the shares still have any value.
Stock compensation is also leading the company to report GAAP earnings in the red and will continue to do so for at least three more quarters. An article posted on MarketWatch claims the company's costs in stock compensation is $2.3 billion and ensures the company does not have a profitable quarter until mid-2013 if financial trends do not improve remarkably.
For current shareholders, dilution in such a situation is a double-edged sword. Stock compensation costs will only go down if the share price goes down, not a good thing of course. But, a rising stock will also trigger larger stock compensation costs, which effectively reduces the stake of each share in the company.
A great article was created, also on MarketWatch. Read it here.
Disclaimer: I am currently short Facebook shares.
Subscribe to:
Posts (Atom)