Tags: Facebook | share | stock | price

Facebook Braces for More Headaches From Plunging Share Price

Thursday, 09 August 2012 07:14 AM

Facebook shares have plummeted by more than 40 percent since the initial public offering in May, and such bad market performance will feed on itself and generate more headaches for the company when a lock-up ends and frees investors to dump their holdings, Business Insider reported.

In two months, about 70 percent of Facebook's outstanding share will be eligible for sale, when the lock-up ends in various stages.

Lock-ups require investors to hang onto stocks after going public to ensure price stability.

"Lock-up releases will likely lead to hundreds of millions of new shares being dumped on the market over the next six months ... and Facebook can no longer do a simple 'follow-on offering' to manage this process," Business Insider founder Henry Blodget wrote.

"Facebook faces a massive $3 billion tax bill related to its employee-stock compensation and can no longer do what it planned to do, which was sell shares to raise this cash," Blodget added.

"Facebook employees now have less incentive to stay at the company than they did prior to the IPO, which may make retention more difficult and expensive."

Facebook could buy back the stock to keep its prices stable but doing so would be costly.

On Wednesday, Facebook stock closed at $20.72, unchanged for the day, down 45 percent from IPO price

Facebook shares have taken a beating since going public on concerns that even though the iconic social-networking site has more than 900 million users, monetizing that base may prove difficult.

Sill, other investors point out that falling share prices today will cushion the effect of the deluge of shares that will hit the market when the lock-up expires, which will stagger over different dates.

"Just because the lock-ups expire doesn't mean people are going to rush to the exits," said Topeka Capital Markets analyst Anthony Victor, according to Reuters.

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