San Francisco/ New York: Facebook Inc shares sank 6.3 per cent to
a record closing low after early investors got the greenlight to sell
for the first time since the No. 1 social network went public, starting a
string of insider lockup expirations that will pressure the stock for
months.
More than 270 million shares owned by early investors
became available for trade on Thursday after a 3-month curb on sales
ended. That's more than half the 421 million shares sold in its initial
public offering on May 18.
The company founded by Mark Zuckerberg
in his Harvard dorm room became the only U.S. company to debut with a
market value of more than $100 billion.

But investors have since grown disillusioned with Facebook's inability
to articulate a plan to reverse slowing revenue growth - due in large
part to its limited mobile advertising efforts - sending the stock down
almost 50 per cent from its $38 debut.
Many investors remain
unnerved by the massive flood of shares still waiting to be released:
More than 1.4 billion additional shares will be eligible for selling by
year's end, nearly tripling the amount available for trade.
Analysts
say Thursday's frenetic trading offers a taste of what may transpire in
November, when many of the social network's employees get to cash in
stock awards for the first time.
"An incredible amount, all the
shares coming," said Steve Birenberg, president of Northlake Capital
Management and portfolio manager for Entermedia Growth Partners, a hedge
fund.
"It's important because it adds to the negative sentiment.
You've got a big overhang of stock, you've got decelerating growth ...,
everything out there now is sort of spun negatively."
With
Thursday's sell-off, Facebook has lost almost $50 billion, or just under
half, of its value since its IPO. The stock, which debuted at $38, fell
as much as 7.1 per cent to a all-time low of $19.69 before ending the
day at $19.87.
Facebook has been wildly volatile, moving more
than 3 per cent in most sessions. It was the most active counter on the
Nasdaq on Thursday with roughly 157 million shares changing hands - five
times its 50-day daily average of just under 30 million shares.
Analysts
said it wasn't clear whether the sell-off was actually driven by
insiders or by other shareholders worried about potential insider
selling.
Among the largest blocks of shares now available for
trading are about 75 million owned by Russia's DST Global Limited and
Mail.ru. Other potential sellers may have included venture capital firm
Accel Partners and PayPal co-founder Peter Thiel.
"I don't think
you're going to see all the supply come to market on Day One. People
will wait until they think there will be a little bit of a price lift,"
said Evercore Partners analyst Ken Sena. "You could say some of the
concerns got priced in, and now it's a question how much demand is there
to absorb the increased supply."
Facebook's IPO was to have been
the culmination of years of breakneck growth that established it as the
world's largest Internet social network with a billion users,
challenging Google Inc for consumers' time and advertising dollars.
Its
May coming-out party is often compared with Google's, which also
debuted against a backdrop of intense investor enthusiasm. But the
search company founded by Larry Page and Sergey Brin fared better after
its IPO, gaining more than 70 per cent in its first 60 days on the
market.
MORE SHARES COMINGAfter staging one of the most highly anticipated IPOs in history, Facebook has felt the sting of investor disenchantment.
Concerns
about the company's slowing revenue growth, and its ability to make
money on mobile advertising, have pressured the stock.
With
Facebook trading at just under $20, Mark Zuckerberg, 28, who enjoys
majority voting power, has now watched more than $9 billion evaporate
from his net worth. Mark Zuckerberg was ranked 35th on the latest
Forbes' list of the world's richest billionaires published in September
2011.
"You've had a failed IPO, the stock has been cut in half, a
sloppy quarter and a big lock-up expiring. Every one of those tends to
erode faith," said Michael Binger, a portfolio manager at Gradient
Investments, whose firm does not have a position in Facebook.
With
Facebook still trading at 40 times its expected 2012 earnings -
compared to 16 for Google and 14 for Apple Inc Binger said he did not
see a buying opportunity until the company's revenue growth starts to
re-accelerate.
Another 243 million shares will be released from
lock-up between mid-October and mid-November. On November 14, more than
1.2 billion shares will be available for trading. Mr Zuckerberg will not
be able to sell his shares until then.
"The biggest issue is not this lock-up; it's the November lock-up," said Pivotal Research Group analyst Brian Wieser.
If the company's perceived operating momentum doesn't improve by then, he said, "then there's real trouble ahead."
GOING SHORTAs
the insider lockups started to expire, the number of Facebook shares
shorted hit a new high of 92.6 million shares on Thursday, according to
Sungard Financial Systems' Astec unit, which tracks short interest. That
would represent roughly 13 per cent of the company's float of 692
million shares.
Short sellers borrow shares to sell them, betting that they can buy the securities later at a lower price and make a profit.
The
cost of shorting Facebook shares has fallen sharply since their debut
in May, because the stock is now easily available to borrow. As of
Thursday, the cost of borrowing the Facebook shares was about 1.6 per
cent per annum on an annualized basis, compared to 40-50 per cent when
the stock made its debut in May.
On Thursday morning, 600,000
shares were shorted, "due in part to the relatively inexpensive rate at
which short sellers must pay to sell short," said Tim Smith, executive
vice president of Sungard's Astec unit.
"Even though Facebook's
market cap has almost been cut in half since its IPO, many investors
believe that shares are still overvalued," Mr Smith said.
Short interest has steadily climbed from 25 million shares on May 22, according to the data by Sungard.
"There
are still at least 30 million Facebook shares that institutional
investors are willing to lend to short sellers as of this morning, so
the cost-to-short should not increase in the near-term, however,
investors should continue to monitor the cost-to-short going forward,"
Mr Smith said.
Short interest figures calculated by the Nasdaq
Stock Market, released on a lagging basis twice a month, shows 61.3
million shares were shorted as of the end of July. New figures on short
interest will not be released until August 24.
"Ultimately, I
think the stock is not going to get moving until the advertising growth
accelerates again. And I'm not really interested in owning it prior to
that point," Birenberg said.
© Thomson Reuters 2012