The Facebook slide on Wall Street continued on Friday, as the company’s shares reached new lows a day after early investors became eligible to sell their shares on the market. Shares were down more than 3 percent in afternoon trading, after reaching a low of $19.01 early in the session.
On Thursday, the stock ended the day at $19.87, its lowest close ever and nearly 50 percent lower than its original offering price of $38 in May.
The company’s widely anticipated public debut seems to have been jinxed from the start, and for a variety of reasons, including technical problems on Nasdaq and slowing sales growth. Complicating its recovery is the prospect of about two billion shares that early investors and employees will be able to sell beginning this week and continuing through next May.
The first and smallest opening in that gate was Thursday, when about 271 million shares were eligible to be sold. The shares are held largely by early investors, like Accel Partners and Goldman Sachs. It is unclear whether they were sold Thursday; the transactions are likely to take some time.
But trading volume in the stock was high: 157 million shares, versus a 30-day average of 31 million.
Companies that go public typically compel insiders to hold on to their stock options for a period of time, to prevent the market from being swamped with surplus shares. The end of the lockup period, as it is known, can typically weigh on value. That is especially painful for Facebook at the moment, because its value has already fallen so precipitously and unexpectedly.
The largest tranche of shares are eligible to come on the market in November, so Facebook could face a deflated stock price for some time to come.
The lockup expiration adds pressure to acute difficulties already facing the company, which made its Wall Street debut with an eye-popping $100 billion valuation barely three months ago. The low stock price complicates Facebook’s ability to attract and retain employees. Without prospects of the stock rising rapidly, prospective employees may choose to work at hot start-ups where they can foresee stock gains that would supplement their salary.
For its stock price to go up, Facebook has to convince Wall Street analysts and investors that the personal data its 955 million users share about themselves can be better used to make money. Despite the fact that Facebook has information about a user’s friends, habits and photos, advertisers are not convinced that Facebook ads are more effective than online ads appearing elsewhere.
So far, its revenue comes largely from advertising and from proceeds of virtual games that people pay to play on the Facebook platform. On both counts, Facebook has struggled, as the company reported slower sales in its earnings report in late July. Its users are increasingly logging in to their accounts on mobile devices, where Facebook has only recently – and cautiously – started selling advertisements. And its vital partner, the social games developer Zynga, has hit speed bumps of its own and its shares have plunged.
“All the lockup is doing is enabling people to sell,” said Richard Greenfield, a media analyst with BTIG, a brokerage firm. “The issue is still confidence in Facebook’s transition from the PC to mobile.”
Mr. Greenfield was among those who advised against buying Facebook shares during its initial public offering. He still advises against it. Some investors are still smarting because many of Facebook’s early big backers – including Accel Partners, one of its first venture capital investors – sold a hefty portion of their shares at the peak price in May. Mark Zuckerberg, a co-founder and chief executive, also sold a portion of his shares in the offering – to meet his tax bills, the company said. All told, early backers sold over $9 billion in shares, though they still own significant amounts.
Some of those early backers – though not Mr. Zuckerberg – were eligible to sell their shares starting Thursday.
Investors who remain confident in the company’s future point out that it is still profitable, with a potential to become a lucrative advertising platform. Facebook is experimenting with new ways to make money, including creating new advertising tools and offering online gambling to its users in Britain.
Source: The NY Times