Monitors show the value of the Facebook, Inc. stock during morning trading at the NASDAQ Marketsite in New York. Credit: Reuters/Eric Thayer
Investors in Facebook, who are still reeling from the social network's disastrous stock market debut, are expecting further losses, as a ban on early backers selling their shares would be lifted this week.
A flood of shares of about 1.9 billion, four times the current publicly traded number, will be released from "lockup", which could further depress stock prices.
“It remains a real risk that shares will be sold on to the market and temporarily depress prices as the market could struggle to absorb an expanded float,” The Guardian quoted Brian Wieser of Wall Street research group Pivotal, as saying.
Facebook's high-profile owners, which include Microsoft, Goldman Sachs to U2 frontman Bono's venture capital fund Elevation Partners, would be free to sell the billions'' worth of securities, which they held back from the initial public offering (IPO) in May.
According to the paper, the major threat to Facebook shares, whose value has fallen 40 percent in the three months since their debut at 38 dollars at NASDAQ, comes in November, when 1.2 billion shares, many of them belonging to employees and venture capital firms, are released from their trading moratorium.
Pivotal believes that these types of investor could decide to sell up to three-quarters of their holdings.
“This date becomes the greatest wildcard,” Wieser said, who believes that a lot depends on Facebook's next set of financial results, expected in October, which should show an acceleration in its rate of growth that is likely to continue until Christmas and beyond, as the company expands its sources of advertising revenue.
“They may be able to navigate through this. The more they can convince Wall Street of the merits of their story, the more they are likely to generate demand for the shares,” he added.