Facebook jumps 10%, despite wave of unlocked shares
NEW YORK (CNNMoney) — About 800 million Facebook shares were newly available to trade on Wednesday, a phenomenon that typically sends a company’s stock lower. But Facebook bucked the trend, jumping 10% early in the session.
Wednesday marked the first day that early employees and investors were able to sell about 773 million shares. Another 31 million restricted stock units owned by employees who joined the company prior to 2011 came to market.
The prospect of so many shares potentially flooding the market tends to send a company’s stock lower. But Facebook shares rose 10% to $21.83 in early trade. About 75 million shares changed hands in the first 30 minutes of the trading day.
Like many initial public offerings, Facebook’s May 18 debut included a “lockup” agreement that requires some shareholders from selling for a certain period.
Lockups, which typically last 90 to 180 days, are designed to prevent the market from being swamped with too many of a company’s shares immediately after an IPO. Keeping the amount of stock scarce can help boost the price. But before Wednesday’s runup, Facebook shares had lost nearly half their value since they debuted at $38.
Facebook has already made it through several lockup expiration periods. The company employs a somewhat unusual staggered system, with a total of five lockup expirations. Wednesday is the third in the series, and marks the biggest potential stock dump by far — which made the gains even more remarkable considering that shares fell on the previous, smaller expirations.
The first came in August, when early investors were able to sell more than 270 million shares and the stock promptly fell 6%. It was later revealed that some of those sellers were Peter Thiel, the company’s first big investor, as well as co-founder Dustin Moskovitz.
The second expiration was just two weeks ago, when many of Facebook’s rank-and-file employees got their first chance to make their paper wealth liquid. Most of what was sold were Facebook’s restricted stock units, which only became shares that could be traded only after a liquidity event like an IPO. A total of 234 million RSUs were converted to stock and then available to trade on October 31.
Two more lockups remain, but they’re much smaller: on December 14 about 156 million shares will be set free, and May 18 (the one-year anniversary of the IPO) marks the end of the lockups, with another 47 million shares set to hit the market.
The offloading of shares could easily have been much bigger. Facebook CEO and founder Mark Zuckerberg, who owns about 444 million shares plus an option for another 60 million, disclosed in September that he’ll hang onto his stock for at least a year. Facebook’s shares perked up the day of Zuckerberg’s announcement.