Facebook shares dive following end of lock-up Friday

Stock falls most in nearly three months, Facebook will not see another lock-up expiration until May

Financial trends and news by Steven Loeb
December 15, 2012
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After Facebook’s most recent lock-up end, which saw the release of 800 million shares, many assumed the worst was over. The stock hit a four-month high after that, and yeah, there were going to be smaller lockups coming over the next few months, but it was assumed that the worst was over. Analysts even began to upgrade their price targets for the social network.

Well, that may have all been premature, as the stock saw its largest tumble in nearly three months Friday, following the release of 156 million shares.

The stock fell 5.06%, or $1.43, to hit $26.81, its lowest level since November 28, over two weeks ago.

This was the fourth lock-up to end for Facebook since August, when roughly 271 million shares are eligible to be sold. As a result, the stock fell nearly 5% to $20.17, its lowest levels yet at the time, down to nearly 50% of its IPO price. And, in October, another 230 million shares were released, causing the stock to end the day down 3.79% Wednesday, trading at $21.11

But, in November, as 800 million shares were available to be traded, Facebook’s stock actually rose as high as 11.2%, before ending trading at $22.36.

A major factor in the rebounding of the stock, were reports from two analysts, which may have persuaded weary investors to take another look.

First was Bernstein analyst Carlos Kirjner, who upgraded Facebook’s stock to Outperform in November, giving the stock a $33 price target, roughly 32% above current trading levels.

Kirjner said that investors were underestimating the company’s ability to beat revenue expectations, and that he expected Facebook to see $6.98 billion in revenue in 2013, 9% above the consensus of $6.39 billion. He believes that the company will see $8.65 billion in 2014, 7% higher than the consensus $8.08 billion.

After the next two years, he said, Facebook will only continue to grow if it is able to refine its ads, and make them more relevant, so that they don’t distract from the user experience, establish that social ads have more value than regular display advertising and find new revenue streams from an ad network or one of its existing services.

Victor Anthony of Topeka Capital also raised his price target, from $34 to $36, citing similar reasons as Kirjner, including the company’s ability to monetize on mobile. He also cited the lockups expirations as a reason to take another look at the stock.

Anthony also mentioned the expansion of the Gifts service as a primary way for Facebook to make money.

Ironically, it may have been the rising optimism about the stock that caused investors to sell.

“A lot of the good news seems to be priced into the shares,” Scott Kessler, analyst at S&P Capital IQ, told Bloomberg. “What I think people are thinking about is, ‘What else can happen?’ whether it’s driven by specifically by Facebook, or others, to drive the stock higher.”

There is one more lock-up looming for Facebook: on May 18, 2013, 47 million shares will be allowed to be traded.

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