By Brandon Bailey, San Jose Mercury News –
Facebook’s stock price rose nearly 13 percent Wednesday, in a surprising show of strength on a day when many had expected the shares to suffer from a wave of selling by insiders who were newly released from trading restrictions.
Wednesday was the first day that insiders were freed from a six-month lockup restriction that barred them from selling roughly 800 million shares of Facebook stock. But despite earlier warnings that the price might be driven down by a sudden influx of new shares on the market, Facebook stock had its second-best day of trading since the company’s initial public offering last May.
The stock gained $2.50, closing Wednesday at $22.36. While that’s still a far cry from the IPO price of $38, the gain marked a reversal from a downward trend seen in recent days. Facebook’s stock had fallen as low as $17.55 over the summer.
Investor confidence appears to be strengthened by Facebook’s last earnings report, released Oct. 23, which showed new growth in mobile advertising revenue, analysts said. Although the stock showed a high volume of trading Wednesday, many investors apparently decided to hold onto their shares.
That was not the case when two other lockups expired in August and October, freeing insiders to sell substantial amounts of stock at a time when earlier earnings reports showed advertising growth had slowed. Facebook’s share price fell in both those earlier instances.
Like many new companies, Facebook set restrictions that required early employees and investors to hold their shares for a period of time so they wouldn’t flood the market immediately after the IPO. The lockup that expired Wednesday covered a larger number of shares than the earlier restrictions.
But “compared with the earlier lockup expirations, this one comes at a time when people are much more comfortable with the direction and fundamentals of the company,” said Arvind Bhatia, a tech stocks analyst for the Sterne Agee investment firm.
Investors may also be feeling relieved at the passing of a significant milestone in the short history of Facebook’s stock. While there are still two more lockups set to expire in coming months, they also involve smaller numbers of shares, so Wednesday was considered the stock’s big test.
Some analysts said the looming lockup expiration was a well-known issue and that many investors had already factored into the stock’s value. “I think it’s largely priced in,” Michael Pachter of Wedbush Securities said in an email.
Others cautioned that investors covered by the lockup could sell more shares in coming days. But Bhatia also noted that Facebook has planned a New York media event Thursday to show off a new e-commerce program, Facebook Gifts, which could give the stock another boost.
Facebook director Marc Andreessen disclosed in a regulatory filing Wednesday that his investment firm, Andreessen Horowitz, distributed about 4.6 million shares to its investment partners, leaving them free to sell the stock. But no other insiders announced significant sales Wednesday. CEO Mark Zuckerberg has said he won’t sell any shares before next September.