Facebook frees up 60% more shares today

http://www.bloomberg.com/news/2012-08-16/facebook-freeing-60-percent-more-shares-seen-weighing-on-stock.html

by chimi • 14 years ago

77 66 14 years ago

bloomberg.com

jonknee• 14 years ago

It's down 5.47% early... Not a good sign, almost ready to break through the $20 barrier.

http://www.google.com/finance?q=NASDAQ:FB

kami8844• 14 years ago

yup, just broke through $20.00 at 10:00am EDT

maartenscholl• 14 years ago

6.7% down. It looks like it's already passing it's 30-day VMA. This is bad news because the unfreezing dates have been known since IPO, and the large volume implies that people are eager to liquidate their shares.

phatbyte• 14 years ago

$19,90 at 5pm UCT time, not good indeed

danweber• 14 years ago

A fall when a bunch of people can suddenly sell is a normal thing.

And those insiders should sell parts of their positions. They are very heavily invested in FB and need to diversify, even if they believe FB is a very wise investment. Many insiders probably have more than 90% of their portfolio in FB stock.

AndrewDucker• 14 years ago

And seven times as many over the next 9 months. I hope that's already priced in...

truebecomefalse• 14 years ago

Wow. I guess they hope they will have stabalized things after a few more quarters.

tokenadult• 14 years ago

From the article, with ellipsis as shown:

"Facebook, worth $51.2 billion, has lost about $40 billion in market value since the IPO, making it the worst performer among all large IPOs on record, according to data compiled by Bloomberg.

. . . .

"'It certainly wouldn’t behoove and wouldn’t be in the shareholders’ best interest to dump the shares on the market all at once,' [Harding] said. 'I would assume that all of the investors that hold the 270 million-odd shares are probably rational, and probably realize that flooding the market with that kind of supply over such a short amount of time wouldn’t help their position.'"

By contrast with Mark Harding, the analyst at JMP Securities LLC quoted in the article, I would keep in mind the old saying "The market can remain irrational longer than you can remain solvent," and be very concerned about other investors looking out for Number One and thus depressing the price of Facebook stock for all other holders of Facebook stock. Over the next several weeks or months, those of us who are looking on (I don't own any Facebook stock) will see what the various investors decide. Thus far, all the trading activity seems to agree in general that Facebook shares will not recover their IPO price any time soon.

ojbyrne• 14 years ago

One could argue that holding the stock and waiting for it to come back up is the irrational response - cutting your loss seems rational to me.

lmm2• 14 years ago

There's pretty much guaranteed to be a temporary dip, because there will be some people who own facebook stock that just came out of lockup and need to sell at any price (perhaps they've just got divorced or something). Holding on for at least a couple of days until the market settles down is the rational move for everyone except those few who absolutely have to sell now.

smnl• 14 years ago

Many large asset managers have mandates to sell their losers and cut losses, or may be window dressing before the end of the quarter and don't want to show to clients that they hold any FB stock on their book.

So that may be contributing to the selloff today

pyoung2• 14 years ago

From my understanding, Facebook is not owned by a lot of institutional investors and asset managers. If you look at the 'Inst. own' metric in Google finance, it says 7%, which is fairly low. I could be misinterpreting this however? Can someone confirm this?

Patient0• 14 years ago

This reasoning seems flawed to me: He seems to not understand that the rational choice for individuals acting independently is often not rational for the group as a whole. The Prisoner's dilemma, Bank runs etc. are all examples of how this can happen.

If everyone else is in danger of selling and pushing the price down, you're better off selling now before that happens... and of course, everyone else would reason the same way, making it a self fulfilling prophecy.

If the shareholders had some way to collaborate and agree collectively to not sell now, his statement might be correct - but I doubt this is even legal even if it was feasible.

Of course, if you're in it for the long haul, then other people's opinions of the stock price shouldn't matter: you just buy/sell facebook stock based on whether you think the future expected dividends justify the investment.

rustynails• 14 years ago

The problem is that a lot if people bought these shares under false pretenses. Decent returns are not visible to anyone who is truthful and open minded. There are two paths in this circumstance - sell now and cut your losses by buying something that will return better, or sell later at an almost certain lower price, and lose that potential in the mean-time. If it were me, I'd cut and run now.

Jabbles• 14 years ago

This is known as "The Tragedy of the Commons".

http://en.wikipedia.org/wiki/Tragedy_of_the_commons

dredmorbius• 14 years ago

Logic of Collective Action

https://en.wikipedia.org/wiki/The_Logic_of_Collective_Action

alecco• 14 years ago

There's a huge volume being traded today. Who is buying?

andylei• 14 years ago

people exiting short positions

tcbawo• 14 years ago

Not to be a conspiracy theorist, but if The Street knows that large blocks are going on sale, this would be an optimal price to run down the price.

lorenzfx• 14 years ago

I interpret the article in a way that these stocks CAN be sold from today on but don't have to.

tatsuke952• 14 years ago

And how do you propose they run down the price? Someone needs to be buying on the other end, and there are a shortage of those. That's why the price sinks.

Besides, the Street made their money off of this deal a long time ago.

Irishsteve• 14 years ago

They can make more. They like more :-)

fkdjs2• 14 years ago

...and it tanks again. Many facebook employees purchased houses using facebook stock. That is, they didn't have enough income to qualify for a loan, but they showed their facebook stock + current market price(pre-ipo), and got approved that way. So one bubble(FB), inflated another bubble(housing), and it's all deflating before our eyes. The fact that facebook employees are tanking/will tank this stock further should tell you something. I believe the employees start selling en masse in October, so this is just the warmup. I'm betting we'll see $12.

localhost3000• 14 years ago

never considered that. is this true? were banks giving mortgages using stock as collateral / proof of credit-worthiness? how widespread is this?

tatsuke952• 14 years ago

Sounds bit of an odd practice to me, since a mortgage is such a straight-forward, easy-to-get loan that the Mexican landscaper can get one even though he doesn't live in the country.

But I believe it. Shares in a company are real assets, and this is the Valley. Interesting story.

retube4• 14 years ago

actually pretty common for high net worth individuals. If you earn 300k a year but have stock worth $10m then yeah banks will lend you way, way above what your income alone would support (ot at least they did prior to the credit crisis. One of the lehman bosses had loans of nearly 50m collaterised with his stock... which went to zero)

RobAtticus• 14 years ago

Considering the housing bubble peaked 5 years ago, way before FB was valued at $100B, and has been deflating ever since, I find your connection tenuous, at best.

samstave• 14 years ago

Well, it appears to be an individual's housing bubble in the personal cases if the FBs that did buy their houses that way.

It's a hard lesson. I have been burned on the promise of options too many times to believe that they will ever turn out like goog did.

Sucks for the employees of FB, but I am happy that we are seeing sanity in the valuation and it is not insanely over inflated via hype.

harlanlewis• 14 years ago

"Across the country, home values fell 15% to 60%, peak to bottom, depending on the area and how badly it was affected by foreclosures — most of San Francisco got off comparatively lightly with declines in the 15% to 25% range." In SF, the bubble was effectively flattened. Other areas saw loss of value beyond pre-bubble prices.

Quote from one of many available sources, this one comes with graphs: http://www.maureenterris.com/?p=2557

SF/Silicon Valley was insulated against the rest of the country's housing crisis largely due to its strong tech sector, which didn't suffer the recession as severely.

I don't know about people using pre-IPO stock to get loans, but the connection is less tenuous than you might expect.

fkdjs2• 14 years ago

And the bubble deflation barely touched the silicon valley, thanks to employees in the valley engaged in bidding wars on homes. Yes it deflated a little, but that's peanuts compared to other parts of California where people literally lost their entire net worth. Combine Facebook employees, Apple employees and investors from China and you have another bubble.

smsm42• 14 years ago

It peaked 5 years ago, this is true, but check out the house values in some neighbourhoods of Palo Alto, Menlo Park, etc. Here's a random 3br house in Menlo Park: http://www.zillow.com/homedetails/1328-Orange-Ave-Menlo-Park...

You don't see huge deflating going on, right? Prices have fallen a lot in some places in the Silicon Valley (like San Jose), but remained quite high in others, primarily on the expensive (1M+) end of the market.

ajays3• 14 years ago

I'm curious, and would love to hear FBers comments on this: how many shares do employees typically have? At what price point (or were they RSUs)? What's the vesting period?

jtbigwoo• 14 years ago

It's funny that all these analyst can talk about such vague suggestions when it seems clear that different investors have clear motivations here.

It's perfectly reasonable for Microsoft to hold on to their shares--even if facebook goes broke they still have billions in cash.

Thiel will probably sell part of his stake--you don't hang on to 1.5 billion by being overly concentrated in any one area.

Other investors (VC's and funds) will almost certainly sell most or all of their stakes. There's no expectation of 10x or 5x returns anymore and a fair amount of downside risk.

I expect 90% of individuals with stock options to sell as they can. If I have a choice between selling at $20 now and getting, say, $200,000 or waiting some unspecified time and possibly getting more (or nothing), I'm going for the sure money every time. Even for someone whose pay is in the low six figures, option money like this can mean paying for your kids' college education or starting your own business. The only ones who might hold on would be those who don't have many shares/options (I'm thinking less than 2,000).

jpdoctor• 14 years ago

> It's perfectly reasonable for Microsoft to hold on to their shares--even if facebook goes broke they still have billions in cash.

Common shareholders are last in line when a company goes broke.

tedunangst• 14 years ago

Microsoft has billions in cash.

roc• 14 years ago

Beyond the strict money value of those shares, Microsoft gains business value from being a large and influential investor in Facebook. That can make up for quite a bit of strictly monetary opportunity cost.

duaneb2• 14 years ago

> I expect 90% of individuals with stock options to sell as they can. If I have a choice between selling at $20 now and getting, say, $200,000 or waiting some unspecified time and possibly getting more (or nothing), I'm going for the sure money every time. Even for someone whose pay is in the low six figures, option money like this can mean paying for your kids' college education or starting your own business. The only ones who might hold on would be those who don't have many shares/options (I'm thinking less than 2,000).

I think there's still a lot of energy/optimism at Facebook inside its own Reality Distortion Field. Even if Facebook doesn't recoup its value for years, there's still a lot of money to be bad. Remember that not everyone makes the same decisions you do.

pyoung2• 14 years ago

I imagine a good number of employees have stock options, which means that, depending on the price of the option, they would not have any value to them.

One thing to keep in mind however, is that it is not uncommon for companies to do a re-price of their stock options if the options are worthless. I wouldn't be surprised to see FB do this if the stock hangs this low for a while.

spaghetti2• 14 years ago

I've always been curious about trading options. It seems like now is a good time to buy the FB120818P00017000 put for example. I honestly don't see the downside to this. That option is trading at $4 for a block of 100. So investing $400 get's you 10000 options. If the price of the stock dips below $17 the option could trade at 48 cents in which case you've turned $400 into $2400 (minus transaction fees and taxes). On the other hand you could lose your $400 which isn't that bad. What's are the downsides here that I'm missing?

cschneid2• 14 years ago

Downside is obviously the 100% loss you'd take on the $400.

Assumption you're making: That FB is overvalued currently, and has 15% to fall (it's at 20 now, and you are saying it will go down by $3 by the 18th [tomorrow!!!])

I'm not sure where that $0.48 is coming from in your comment. At expiration (when an option has no time value), a put should be worth StrikePrice - StockPrice. So if Strike is $17, and stock is... say... $15, the option will be worth $2 ($200 since each option actually controls 100 shares). That math changes with the stock price, so I'm not sure what you're talkinga bout with $0.48...

Also note that spreads at the low end of options will eat you alive. Specifically you should expect to pay upwards of $10 or even $15 to get anybody to fill you on those options. The $4 amount is highly unlikely to get filled, especially at the qty you are talking about.

Basically, this is a bad idea, and will just lose you $400.

chucknelson• 14 years ago

After reading this, it seems like way too much complexity exists in the market. Me and my naive thoughts of "it's just simple buying and selling, right?"

How long has it been like this?

spaghetti2• 14 years ago

Good point about the expiration. If I was betting on the $17 figure I would buy options that expire in a few months. The 48 cents was just a conservative number to throw out there (value of puts w/ $17 strike price would probably be higher if the stock is significantly below the strike).

retube4• 14 years ago

That option expiries in 2 days - very unlikely it will drop $3 in that time. Historical volatility for FB is around 6% for a 2 day move which at current level is about $1 in price terms. So you need a 3 standard deviation move for this thing to be in the money, i.e about 1 in 1,000 chance. I'd sell you that :)

Silhouette• 14 years ago

Historical volatility for FB is around 6% for a 2 day move which at current level is about $1 in price terms.

Presumably the point is that not everyone is expecting the next couple of days to be "normal", given the amount of shares potentially going on the market as the lock ups end. Obviously that doesn't necessarily make the mentioned deal a good one, but it doesn't make much sense to assume anything about the stock price movements today based on the limitations of yesterday.

apw• 14 years ago

Do you actually invest using these ideas? Why is a univariate Gaussian fit to recent sample data a good way to estimate risk!?

debacle• 14 years ago

When you buy a put, it's usually for a price per share. In this case, $4 means investing $400 for 100 options.

msellout• 14 years ago

The downside is that you lose $400. Just because the last transaction of that option was at $4 doesn't mean you can buy it at $4. Options are relatively illiquid.

chollida1• 14 years ago

That's an enormous time premium that you are paying. If you're a large holder then it might make sense as downside protection but otherwise I can't see the reason for it.

Lasher• 14 years ago

These are not new "dilutive" shares - the stock was always factored into the FB market cap so it's not like publicly traded shares are suddenly worth 60% less just because the float increases. But it does mean that for a while people who have been unable to sell are able to do so which is going to lead to some short term downward pressure. Once that is over Facebook will resume its normally trajectory, ummm, downward...

scarmig• 14 years ago

How did Facebook's IPO go so badly? (It's generally agreed upon that it went horrifically for Facebook and its shareholders, right?) Is it, in a very stylized way, Wall Street in just wanting to extract as much money as possible from a target and not really serving the interests of the client?

If so... how can that market be disrupted?

calciphus• 14 years ago

It went badly because a few groups had tried to inflate the stock for its IPO, and as soon as folks got their hands on financials that became apparent.

Without a revenue plan and saddled with immense costs, that company is generally not fiscally healthy, certainly not enough to justify 100x valuation over annual profits.

duaneb2• 14 years ago

People had unreasonable expectations because it was one of those Big Silicon Valley IPOs, which have traditionally paid off very well. I suspect that most people thought (without evidence) that Facebook had some magic revenue device up their sleeves. Perhaps Facebook also thought they would be given more time to produce on the investment.

dchuk• 14 years ago

A company's customers determine its value. Facebook's customers are advertisers, not stock purchasers.

Advertisers have valued them at a few billion dollars. The stock purchasers put that value at over $100bn. For some reason, people took the stock purchaser's word over the actual customer's word.

Facebook frees up 60% more shares today

Related Stories