Facebook Inc shares jumped nearly 13 percent on Wednesday, as investors breathed a sigh of relief that expiring trading restrictions on a huge block of shares failed to trigger an immediate wave of insider selling.
“While the lockup is expiring, there is nothing requiring anybody to sell,” said Tim Ghriskey, chief investment officer at Solaris Group in Bedford Hills, New York. “Given the low price, these long-term holders are deciding to hold the stock, and that is lifting it here as the fear of the expiration subsides.”
Roughly 800 million Facebook shares were eligible for sale on Wednesday after restrictions on insider selling were lifted on the biggest block since Facebook’s May initial public offering (IPO).
The lockup expiration greatly expands the 921 million share “float” available for trading on the market until now.
“We’ve seen this before with other lockups. People sell them leading up to the lockup period expiring, and then they have a bit of a relief rally,” said Ryan Jacob, chief executive of Jacob Funds, which does not own Facebook shares.
In August, shares of the online reviews Web site Yelp Inc surged more than 20 percent on the day that insider trading restrictions expired. That stock’s rally was boosted as short-sellers scrambled to cover their positions when the expected flood of selling failed to materialize, analysts said.
Facebook finished Wednesday’s regular trading session up 12.6 percent at US$22.36 on the NASDAQ, with trading volume for the stock more than four times the average during the past 50 days.
The world’s No. 1 online social network became the only US company to debut with a market value of more than US$100 billion, but its value has dropped nearly 50 percent since the IPO on concerns about money-making prospects over the long term.
Facebook, with roughly 1 billion users, delivered better-than-expected third-quarter results on Oct. 23 and revealed that 14 percent of its advertising revenue is now from mobile ads, reassuring some investors it was beginning to figure out how to earn money from smartphone and tablet users.
Several members of Facebook’s senior management have sold millions of dollars of shares in recent weeks through pre-arranged stock trading plans as lockup restrictions expired. However, Facebook’s 28-year-old chief executive, Mark Zuckerberg, has pledged not to sell any shares before September next year.