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As first 'lockup' ends, Facebook stock drops 5 percent

The stock is down in early trading now that 271 million shares held by pre-IPO insiders have been freed up for potential sale -- but at least it didn't nosedive.

Sarah Tew/CNET

The first of Facebook's "lockups" has expired, meaning that insiders can start selling their stock. But so far, it appears that a flood of shares and a plummeting share price aren't in the offing for the social network.

In early-morning trading today, Facebook shares started out down about 5 percent to $20.15. It's by no means a reassuring performance, but things could have been much worse.

Today, 271 million shares were freed from their lockup, allowing insiders included in that grouping to sell as many of those pre-IPO shares as they'd like. However, because Facebook's stock price is so low -- it went public at $38 -- it's believed that many insiders are hoping for a turnaround before selling their shares.

Facebook's reaction to its first lockup period expiring stood in stark contrast to those of other Web companies that have recently gone public. Both Zynga and Groupon, for example, were forced to hold a secondary offering of shares prior to their lockup periods ending in order to increase public float -- a measure of the difference between outstanding shares and restricted stock. By increasing the float through a secondary offering, the companies were able to stave off major declines in their stock price when insiders were allowed to sell.

In those cases, however, insiders had something to gain when their lockup periods expired. With Facebook, that doesn't appear to be the case.

Looking ahead, Facebook has four more lockup dates to get through. On October 15, 249 million shares will be available for sale, and on November 14, 1.32 billion shares can be put on the market. On December 14 and May 13, 49 million and 47 million shares will be offered up, respectively.