Facebook shares have fallen significantly as the first lock-up period, which stops sales by early investors, ended.
According to BBC, shares fell by 6.27% to $19.87 at close of trade in New York, down from $20.74 on Wednesday.
More than 270 million shares owned by early investors became available for trade on Thursday after a 3-month lock-up on sales ended. That’s more than half the 421 million shares sold in its initial public offering on May 18.
Among the largest holders freed from the lock-up were venture capital firm Accel Partners, Elevation Partners, which is backed by Irish singer Bono, and Microsoft. PayPal founder Peter Thiel was also free to cash in.
Lock-ups prevent company insiders from selling their shares in a newly-floated firm, and usually start to expire 90 days from the initial public offering (IPO).
Facebook listed on Nasdaq in May, in what was one of the most anticipated flotations in years. The company founded by Mark Zuckerberg in his Harvard dorm room became the only U.S. company to debut with a market value of more than $100 billion, Reuters writes.
However, investors have since grown disillusioned with Facebook’s inability to articulate a plan to reverse slowing revenue growth – due in large part to its limited mobile advertising efforts – sending the stock down almost 50 percent from its $38 debut.
According to The Telegraph, further lock up periods expire as the year progresses, with an extra 1.44bn shares freed up for sale over the next 9 months, prompting worries that there could be further falls in the price.
“The biggest issue is not this lock-up; it’s the November lock-up,” said Pivotal Research Group analyst Brian Wieser.
In November the freed-up shares will include those owned by Zuckerberg, the Facebook CEO and founder who sold 30 million shares for $1.1 billion in the May IPO to cover his taxes.
“I don’t think you’re going to see all the supply come to market on Day One. People will wait until they think there will be a little bit of a price lift,” said Ken Sena, Evercore Partners analyst. “You could say some of the concerns got priced in, and now it’s a question how much demand is there to absorb the increased supply.”
Facebook has lost some of its lustre since its May flotation and after reporting a $157m loss in the second quarter, although most of the loss was due to pay-outs to the company’s early investors, including chief executive Mark Zuckerberg.
The company’s IPO was to have been the culmination of years of breakneck growth that established it as the world’s largest Internet social network with a billion users, challenging Google Inc for consumers’ time and advertising dollars.
Its May IPO is often compared with Google’s, which also debuted against a backdrop of intense investor enthusiasm. But the search company founded by Larry Page and Sergey Brin fared better after its IPO, gaining more than 70 percent in its first 60 days on the market.
With Facebook trading at under $20, Mark Zuckerberg, who enjoys majority voting power, has now watched more than $9 billion evaporate from his net worth. Zuckerberg was ranked 35th on the latest Forbes’ list of the world’s richest billionaires published in September 2011.
“You’ve had a failed IPO, the stock has been cut in half, a sloppy quarter and a big lock-up expiring. Every one of those tends to erode faith,” said Michael Binger, a portfolio manager at Gradient Investments.