On May 18th, Facebook held the biggest initial public offering (IPO) in history. The stock, which had a peak market capitalization in excess of $104 billion, debuted at $38 per share. However, shortly after the stock went public, concerns over mobile monetization and a multitude of other problems have nearly cut the new stock’s value in half.
Now, Facebook’s newest problem is related to the expiration of the lock-up period, which could hypothetically add as many as 1.91 billion additional shares of Facebook stock to the 421 million existing shares currently on the market. The lock-up period, which is used to reduce trading volatility immediately following an IPO, prohibits company executives and insiders from selling shares for approximately 90 days following a stock’s debut. As early as tomorrow morning, a few Facebook directors and early investors will have their first opportunity to sell their shares.
Over the next several months, a list of investors that includes Facebook CEO Mark Zuckerberg, Peter Thiel, and Goldman Sachs will have to decide if they want to hold or liquidate Facebook stock. Although nearly two billion shares could potentially flood the market by the end of 2012, the current trading price will certainly cause some insiders to hold the stock in hopes of recouping the paper loss of the past three months. However, if a large number of company insiders begin to release shares to the market, it could encourage other insiders to do the same and eventually drive the price downward.
Yesterday, Facebook’s stock closed at $20.38 and the company had a market capitalization of $43.7 billion.
If you owned Facebook stock would you sell? What price would you purchase Facebook stock at?