independent

Saturday 19 April 2014

Facebook shares up 11.2pc as block becomes eligible for sale

Shares in Facebook jumped as much as 11.2pc yesterday, even as the biggest block of shares held by insiders became eligible for sale for the first time since the company's disappointing debut in May.

Facebook shares were up 8.8pc to $21.60 (€16.91) on the Nasdaq, off an earlier high of $22.09.

"While the lockup is expiring, there is nothing requiring anybody to sell," said Tim Ghriskey, chief investment officer at Solaris Group in New York. "Given the low price, these long-term holders are deciding to hold the stock, and that is lifting it here as the fear of the expiration subsides."

Roughly 800 million Facebook shares were eligible for sale yesterday after restrictions on insider selling were lifted.

The lockup expiration greatly expands the 921-million-share "float" available for trading on the market until now.

"We've seen this before with other lockups. People sell them leading up to the lockup period expiring, and then they have a bit of a relief rally," said Ryan Jacob, chief executive of the Jacob Funds.

The world's No 1 online social network became the only US company to debut with a market value of more than $100bn. But its value has dropped nearly 50pc since the IPO on concerns about money-making prospects.

Insider trading lockup provisions started to expire in August, and the rolling expirations have added to the pressure on the stock.

A limitation on more than 200 million shares expired on October 29.

Pivotal Research Group analyst Brian Wieser said he did not expect Facebook insiders to sell all of their shares as the lockups expired.

"I would expect heavy volumes over the next few weeks, but not undigestible volumes," said Mr Wieser. By his estimate, roughly 486 million of the nearly 800 million newly freed shares will be sold.

There is some evidence the heavy interest in "shorting" the stock was dissipating, given the poor performance since it first sold shares in May. Investors who believe a stock will fall can bet against it by shorting the stock – that is, borrowing it and selling it in the hopes it will decline.

According to Markit, a financial information services company, about 28pc of the shares available for short-selling were being borrowed for that purpose.

Similarly, SunGard's Astec Analytics noted that the cost of borrowing Facebook shares is down more than 50pc since the beginning of the month.

"Everything would seem to indicate the market is losing its appetite to short Facebook," wrote Karl Loomes, market analyst at Astec.

The cost of shorting has declined to 0.18pc on an annualised basis, Astec said. By contrast, shortly after the IPO, the cost to short the stock ranged from 40pc to 50pc annually.

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