Facebook Shares to Flood Market
Big "value" investors like George Soros are expected to save the social media giant's stock from further sinking.
Since a mid-May initial public offering, Facebook's stock is down from $38 a share to around $20. Next week could portend more selling pressure on the share price as lockups restricting the sale for certain Facebook insiders expire. Between next week and May 2013, more than 1.9 billion shares of Facebook stock will come onto the market, representing a quadrupling of the number of shares available.
However, Facebook's share price might not necessarily sink. Some analysts believe Facebook to represent a value after all the pessimism has hurt the company's stock price. The company is introducing more ads into users' news feeds. And other big investors, notably hedge fund manager George Soros, have just purchased a Facebook stake. According to SEC filings, Soros purchased 341,000 shares of the social media company in the second quarter.
Among those who will soon have the opportunity to sell their Facebook stake are Peter Thiel, one of the company's earliest institutional investors, Accel Partners, Goldman Sachs, Zynga CEO Mark Pincus, Microsoft Corp. and LinkedIn founder Reid Hoffman.
Those with the ability to wait until Facebook's stock price rebounds from its lows are expected to do so.
Brian Wieser, an analyst at Pivotal Research Group, says the expiration of share lockup represents a "heightened risk," yet he believes it will prove to be "mostly a nonissue."
"With the stock weak, our concerns are partially diminished as it seems unlikely that shareholders who don’t need to sell will do so given widespread understanding among those closest to the company that Facebook is not 'MySpace 2.0,' " he wrote in a research report. "Further, as the stock has traded down so much, new public company investors with a value-orientation are increasingly likely to become buyers."
Nonetheless, the possible huge influx of shares onto the market may provide some gravity in the short term to any gains in Facebook's share price.
Ken Sena, an analyst at Evercore Partners, says in a research report that Facebook's sagging stock price "is likely to be drawn out" because of the staggered schedule of the expiration of the restricted stock lockup.