Facebook Stock Crash As Lockup Period Ends

Facebook Stock CrashFacebook stock crashed 7%, hitting a new intra-day low of US$ 19.69 as the lockup agreement ends today, Aug 16, 2012.

When the US$ 100 billion Social Networking Company debuted from NASDAQ on May 17, it was quoting a stock price of US$ 38 (listing price). Soon after the listing, it is falling freely till date, losing almost 50% of the initial value.

According to Facebook’s IPO contract or Lockup agreement, few shareholders (holding hundreds of millions of shares) require to hold the stocks for a fixed period (90 days).

With the end of this lockup period, these heavy weight share holders flooded the NASDAQ floor with Facebook stocks by selling at throw-away price.

Within 10 minutes of trading, about 22 millions of Facebook stocks changed hands. And, after 90 minutes the volume reached 78 millions.

This type of heavy selling is quite common when the lockup period of the IPO ends. For example, LinkedIn lost 7% and GroupOn lost 10% when their IPO contract period ended.

Lockup period is meant to stabilize the stock market after the IPO listing, and to protect the small investors or general public by preventing of selling stocks by heavy-weight share holders.

Market insiders are speculating one more crash of Facebook stock in mid November, when Facebook will convert the RSUs (Restricted Stock Units) in to actual shares, held by its employees.

Comments

  1. says

    Hello Nandita,

    This piece of update would give heart burn to many who must have invested in facebook and have no way to get back money for the above reasons. Though, highs and lows are common in stock market, this fluctuation will sure to have an adverse effect on many.

    Regards,
    Amit

    • says

      Hi Amit,

      Nice to see you on MoneyCTL. Higher expectations, recent controversies and low earning forecasts are the main reasons Facebook share is crashing day by day.

      Hope for the best for those unlucky ones. :)

  2. says

    Facebook is definitely a big empire with lots of followers, but I think the crash of Facebook stock was kind of to be expected. They inflated that stock price before it was even issued and made such a big deal out of it. At the same time they tried to hide the real financial situation going on with Facebook. Thanks for your article!

  3. says

    Hi Nandita,

    Just read about this on Business Insider. The facts are shocking. Facebook is going to have a tough time ahead. FB has lesser options to raise cash to compensate the employees for the stock. Also, the employees have humble incentives to stay with the company.What a shocker.

    Regards,
    Raj Kumar

  4. says

    Facebook have almost useless traffic,
    Especially indian users,
    Fb over estimated himself,
    I hope now price will be stabled.
    And Mobile advertising may increase the price of shares. ;)
    Letz see.

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