Facebook shares hit new low

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RICHARD DREW / THE ASSOCIATED PRESS ARCHIVES Facebook shares have dropped nearly 50 per cent since Nasdaq welcomed the company�s initial public offering in May. (CP)

SAN FRANCISCO -- Facebook's stock plunged to a new low Thursday as some of the social networking leader's early backers got their first chance to sell their shares since the company's initial public offering went awry.

Analysts interpreted the unusually high trading volume as a clear sign that at least a few of the insiders were seizing on a fresh selling opportunity. That is stirring a debate over whether they're simply locking in long-awaited gains on investments made many years ago or bailing out of a company that has lost its lustre.

A breakdown on just how many major Facebook Inc. shareholders sold their stock probably won't be available until next week at the earliest. Securities regulations give them at least three days before they have to disclose such transactions.

The information is important "because if you are an investor who has been sitting on the sidelines waiting for a good time to buy the stock, you might decide to stay on the sidelines for a little longer after seeing which insiders decided to sell their stock," CapStone Investments analyst Rory Maher said.

All told, investors who owned a combined 271 million Facebook shares could have sold their holdings Thursday with the expiration of a ban known as a lock-up period. The restrictions were imposed on a group of venture capitalists, companies and Silicon Valley cognoscente who invested in Facebook during its formative years and sold some of their holdings three months ago when the company went public at $38.

The highly anticipated IPO had valued the company at $104 billion, similar to those of Amazon.com Inc. and Pepsico Inc. The shares have plunged by nearly 50 per cent since then amid concerns about whether Facebook is destined to become a passing fancy and worries about whether it will be able to sell more advertising on mobile devices as users gravitate there.

Facebook stock traded as low as $19.69 before bouncing back slightly. The shares closed Thursday at $19.87, down $1.33, or more than six per cent. The previous low during the day was $19.82 and the previous low for a close was $20.04, both reached Aug. 2

More than 156 million shares were traded, more than five times the stock's average volume over the past month. Trading in the overall market was lighter than usual.

Those eligible to sell their shares Thursday included venture capital firms Accel Partners and Greylock Partners, investment banker Goldman Sachs Group Inc., software maker Microsoft Corp., Zynga Inc. CEO Marc Pincus, LinkedIn Corp. Chairman Reid Hoffman and former PayPal CEO Peter Thiel.

If there were mass selling within this group, Facebook's stock could decline further because the market would be flooded with nearly two-thirds more shares.

Given that most of these investors put their money into Facebook five to eight years ago, they probably were eager to sell, said Sam Hamadeh, CEO of PrivCo, which researches privately held companies.

"A lot of people have been waiting," Hamadeh said. "Facebook was expected to go public a long time ago."

Despite the sharp drop in Facebook's market value during the past three months, the early investors can still reap huge windfalls by selling at the current price.

For instance, Thiel invested $500,000 in Facebook in 2004, the year CEO Mark Zuckerberg began the site in a Harvard dorm room.

After selling 16.8 million shares for $640 million at the time of the initial public offering in May, Thiel still owned nearly 28 million shares worth about $560 million at Thursday's trading prices.

Accel Partners invested $12.7 million in Facebook in 2005. The firm sold nearly 58 million shares for $2.2 billion as part of Facebook's IPO and still owned nearly 144 million shares worth about $2.9 billion.

It wasn't known how many of those shares could have been sold Thursday, or whether any of them were.

Because those investors had put up little compared with the shares' value today, "you can understand why they would want to take some of their money off the table now," Maher said. "But at the same time, you have to wonder if they're thinking that Facebook isn't much of a bargain anymore."

Hamadeh believes the venture capitalists who invested in Facebook realize it's a "fool's game" to wait for a better price on the stock.

The selling shackles will come off of an additional 1.66 billion locked-up Facebook shares during the next nine months to place more potential pressure on the stock. In November, about 1.2 billion insider shares will be eligible for sale.

-- The Associated Press

Republished from the Winnipeg Free Press print edition August 17, 2012 B9