Facebook is hitting the skids again and according to CNNMoney, its life as a public company has been a nightmare. As with most public IPOs, Facebook’s initial stock offering included a “lockup” agreement which requires early investors to hold their shares for a set period. That prevents the initial market from having shares dumped, driving down the price. But one of the lock-up periods ended Thursday and whether or not investors sell, it has made others skittish that they might. Some 271 million additional shares can now be sold, though many early stakeholders (for example, Microsoft) will probably hold their shares.
But this is only the first of many rounds Facebook will have to endure in this:
The big Facebook stock dump could come in mid-November. That’s when Facebook will convert the special form of restricted stock units, or RSUs, held by most of its staff into actual shares of its stock.
Obviously, employees may have a much larger incentive to sell – prompted by a “let me take my investment while I can” attitude. All total, some 1.8 billion shares will be potentially released over the next nine months – today’s action boosted the available shares on the market by 60%, but it’s only 14% of what will become available in the future. Of course, the lower a stock goes, the more attractive it becomes – Netflix CEO Reed Hastings just bought a million shares of Facebook but he is a member of the board. I doubt many others will follow up on his move.
There’s enough talk on the Web that this means the “end” of the social network bubble. Everyone in the arena is trying to figure out ways to bring in revenue especially on mobile platforms and a few such as Zillio and LinkedIn have done well. While it may not be something like the dot.com bust back in 2000, investor expectations clearly got ahead of themselves. From the Huffington Post (July 27th):
With a few exceptions, the first wave of social media firms to trade on the public markets has delivered a disastrous performance that conjures memories of the dot-com bust of 2000.
“Farmville” publisher Zynga, which went public in December at a valuation of $7 billion, is trading around $3.15 a share, more than 68 percent off its $10 IPO price.
Daily deals site Groupon, touted as the firm that could reinvent local commerce, has fallen from its $20 IPO price to about $7.15 in nearly nine months. Music service Pandora Media has dropped from $16 at its June 2011 IPO to around $10 on Friday.
For now, let’s just leave it where Bloomberg News does: Facebook goes down as the worst large IPO on record. Zuckerberg, time to do some more of those serious all-night marathon coding sessions.