Facebook stock jumps as shares unlocked

11:00 AM, Nov 14, 2012   |    comments
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(USA TODAY) - Shares of Facebook (FB) rose sharply Wednesday, surprising some investors, who expected the stock to fall after 777 million more shares were unlocked, allowing employees to sell.

In the first half hour of trading, the stock was up more than 10% to $21.85.

Facebook's jump in early trading was not unprecedented. Shares of online review site Yelp rose more than 20% in late August after a lockup because there was less selling than expected.

On Wednesday, employees and other investors in the No. 1 social networking company were allowed to sell up to 777 million more shares. It's customary for companies to "lock up" shares held by early investors and employees for several months after an initial public offering so stock doesn't flood the market as employees and early investors cash out.

Trading in Facebook was heavy Wednesday, with volume of more than 55 million shares in the first 20 minutes of trading. That exceeded the stock's average 52 million daily share volume the past 30 days.

The unexpected rise in the wake of the third, and dramatically largest unlocking of shares, broke a string of large stock losses following these events. Market observers predicted a rise was unlikely, but possible if the number of employees who actually sold was less than the massive wave expected.

Shares of Facebook fell after smaller numbers of shares were unlocked twice before. Shares dropped 6% to a new low in mid-August and dropped 3% following a share unlock in late October. On average, IPOs tend to fall 2% after share lockups expire, says Jay Ritter professor of finance of the University of Florida.

The fact large institutional buyers like mutual funds have been willing to step up an buy Facebook, especially after the company's better-than-expected earnings report last month, is also putting somewhat of a floor under the shares. In that earnings report, Facebook showed traction in generating revenue from mobile users, a long-standing concern of investors since the IPO.

Shortly after the May IPO, investors began to question the company's ability to make money from users who access the site from mobile devices. The company's first reported quarter failed to impress as results came in mostly in line.

Facebook's second quarterly report in late October, though, encouraged investors as it topped expectations and showed the company got 14% of revenue from mobile advertising.


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