Facebook's IPO is considered a failure in that the share price was too high to attract retail investors. But that price could go a lot lower if Facebook can't raise its business prospects and insiders start to sell rather than hold shares.
There's more than 1.7 billion shares owned by insiders, such as employees, etc, that will be "unlocked' over the next six months and will become eligible for trading. That's a huge overhang considering that Facebook floated 421 million shares in its IPO.
It's equivalent to an additional four Facebook IPOs if all the shares were to be offered for sale. But even a fraction of 1.7 billion shares sold represents a huge number, one that's large enough to depress share prices.
The largest block of shares, about 1.3 billion, unlocks in six months time.
The late November unlock date means that shareholders will have just a few weeks to sell shares for tax reasons, and many will need to sell. That flood of sales will undercut the price of Facebook shares no matter how well the company does in its business operations.
In contrast, Google's IPO was in August, which meant that people holding shares that unlocked in 6 months, had about 10 months to decide when to sell and could wait for a better price.
The people most affected will be Facebook staff because they are the main target of the six month lockup rule.
But it's not just the December timeframe that Facebook shareholders should be watching. There are large numbers of shares that will be available for trading well before then and will act as a dampener on price gains.
Kathleen Pender, columnist for the San Francisco Chronicle quotes from a report by Brian Weiser at Pivotal Research Group.
"The expiration of the company's share lock-ups could hit the company hard over the course of 2012. In particular, 91 days after the IPO lock-up agreements covering 172 million shares will expire. Additionally, between 151 and 180 days post IPO, 247 million shares and share-equivalents will become unrestricted. Most significantly, 181 days after the IPO, lockups on 1.3 billion shares will expire."
This cascade of expiring lockups will undoubtably encourage selling as some shareholders will seek to avoid the massive 1.3 billion share lockup expiring in late November. It's not a good scenario for Facebook staff.
However, a more affordable $FB would be a nice new year's gift for retail investors, which might make tech investing popular again.
Or, maybe Mark Zuckerberg swoops in on a black-swan consortium of hedge funds, and buys back Facebook for 25 cents on the dollar. And takes it private. Mark Zuckerberg doesn't like to share.