Facebook 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.