Facebook shares plunged to a new low on Thursday as some of its early backers got the first chance to sell their shares since the company's initial public offering (IPO) went awry.
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 6 per cent. The previous low during the day was $19.82 and the previous low for a close was $20.04, both reached August 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.
All told, investors who owned a combined 271 million Facebook shares could have sold their holdings on 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.
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The highly anticipated IPO had valued the company at $104 billion, similar to those of Amazon.com Inc. and PepsiCo Inc.
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 luster.
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 business days before they have to disclose such transactions.
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.
The Facebook investors eligible to sell their shares on Thursday included venture capital firms Accel Partners and Greylock Partners; investment banker Goldman Sachs Group; software maker Microsoft Corp; Zynga Inc CEO Marc Pincus; LinkedIn Corp Chairman Reid Hoffman; and former PayPal CEO Peter Thiel.
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If there was mass selling within this group, Facebook's stock could decline further because the market would be flooded with nearly two-thirds more shares.
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 on Thursday, and whether any of them were.
Microsoft, which invested $240 million in Facebook in 2007, relies on Facebook's social network to help bring more traffic to its Bing search engine, making it less likely that it would risk antagonizing Facebook executives by bailing out. The software company also doesn't need the money, as it is already is sitting on $63 billion in cash. A Microsoft spokesman declined to comment on Thursday.
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.
One of the biggest tests will come in November when about 1.2 billion insider shares will be eligible for sale.
The freed-up shares will include those owned by Mark Zuckerberg, the Facebook CEO and founder who sold 30 million shares for $1.1 billion in the May IPO to cover his taxes.
It appears some investors believe Facebook's stock price is nearing its low point, at least until the next lock-up periods end this fall.
Short sellers, a type of investor that bets certain stocks will fall, had been intensifying their focus on Facebook since the company's July 26 report of disappointing revenue growth during the second quarter. To wager against a company, short sellers must borrow the stock of other investors and then make money by paying back the shares at a lower price.
"The amount of borrowed Facebook shares had spiked from about 70 million before Facebook's second-quarter earnings report to about 92 million at the end of Thursday's trading," Tim Smith, senior vice president of SunGard Astecs Analytics, which tracks short-selling activity, told Associated Press.
It has been a rough run for Facebook. After one of the most-anticipated IPOs in history, Facebook had perhaps the most-botched stock market debut as glitches marred its first day of trading.
Things have gotten progressively worse as Facebook's market value has plunged by about $49 billion.
The downfall stems from doubts about Facebook's ability to fend off intensifying competition from Google Inc while trying to develop a plan for increasing the amount of revenue that it brings in from a worldwide audience of 955 million users.
The uncertainty means Facebook's stock is likely to be volatile until the end of the year when the majority of the lockups expire.
With inputs from Associated Press