Shares of Facebook are plunging to all-time lows after the expiration of a lock-up period, which has provided early investors and insiders with an opportunity to exit.
The stock fell 7%, or $1.49, to $19.71 in Thursday morning trading.
If the stock hits $19, it will have lost half its value since Facebook (FB) went public in May.
It's been a rough run for Facebook which, after one of the most anticipated initial public stock offerings in history, suffered what may be the most botched IPO as trading glitches marred its first day. It's been almost all downhill since then.
In all, 271 million shares of the Menlo Park, Calif.-based company will become eligible for sale this week, according to Facebook's regulatory filings. That's two-thirds of all shares.
Until Thursday, insider had been barred from selling these shares for 91 days following the May 18 initial public offering.
Investors are nervously waiting to see how the market handles this massive influx of stock, which has already lost nearly half its value.
This first lockup makes 271.1 million shares available for trading, which is more than half the number of shares sold in the IPO and more than a tenth of what's currently outstanding.
"You're going to see a lot of volatility," says Scott Kessler of S&P Capital. IQ. "People could sell, and investors are worried about that."
All lockup expirations are significant events for IPOs. Facebook's might be more noteworthy due to:
•Recent lockup troubles. Investors who think stock prices accurately price in looming lockups ahead of time got a reminder this week that that's not always the case. Shares of online review site Angie's List sank nearly 16% Tuesday after shares that had been locked become available.
•An even bigger deluge is coming. Thursday's lockup is just the first in five expirations. Another 247 million shares are unlocked on Oct. 16, and a deluge of 1.2 billion shares come on Nov. 15. "I've never seen lockup periods with so much stock," says Francis Gaskins of IPOdesktop.com
•Investors are focused on the lockup. The lack of a positive surprise in Facebook's second-quarter results and little forward guidance leave investors with just lockups to think about, says Mark Harding of JMP Securities. "The next big event is this lockup."
But while the lockup expiration is certainly capturing investors' attention, analysts are torn on what the reaction will be.
The expiration is unlikely to have any significant long-term effects because the stock is so depressed, Harding says.
Many of the large investors who bought the shares when Facebook was private in 2011 and early 2012 would take losses if they sold, he says.
The average price in early 2012 was $40 a share. The shares closed Wednesday at $21.20. Despite the looming lockup, S&P Capital IQ's Kessler upgraded the stock to a buy this week.
Big investors with the newly unlocked shares, including Microsoft, Facebook director Peter Thiel and venture capitalists, aren't likely to dump shares just because they can, Harding says. "They will work with the company with a more orderly way to sell if they want to sell."
By Matt Krantz