SAN FRANCISCO (MarketWatch) — Shares of Facebook Inc. jumped Wednesday, bucking expectations of a selloff with the unlocking of hundreds of millions of shares held by insiders now eligible for sale in the open market.
Facebook FB +12.59% rallied 12.6% to close at $22.36 Wednesday as the lockup period for more than 800 million shares — the third and biggest wave after the company’s initial public offering in May — expired. The latest lockup expiration is expected to nearly double the size of the company’s share float.
“I think the market is relieved that the infamous day has finally arrived,” Scott Sweet of IPO Boutique told MarketWatch.
Some analysts had been warning for weeks about the potential impact of the post-lockup wave which could double Facebook’s share float. Indeed, Facebook’s shares had slipped more than 13% from a post-earnings gain in late October by the beginning of this week — though the stock remained well above the record low of $17.55 seen in early September.
“Now, here we are and the stock is not getting pummeled,” Sweet said.
Other analysts had argued that the latest lockup expiration would not have as big an impact as two previous waves. The first one in mid-August, including about 270 million shares, was among the factors that sent Facebook’s down to its record low.
Facebook also has reeled from its controversial IPO in May, which triggered lawsuits from investors who accused the company and its underwriters of misleading them. Another key concern had been the company’s ability to grow its mobile ad business.
Those worries have eased since Facebook’s earnings report last month offered a more upbeat picture of its mobile ad business.
In a Wednesday note, Cantor Fitzgerald analyst Youssef Squali said “patient investors” should “take advantage of the market dislocation that’s likely to ensue between now and year-end to accumulate the stock”
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“Facebook is a long-term winner,” Squali wrote, saying the company “is showing accelerating revenue growth and early traction in mobile.”
Victor Anthony of Topeka Capital also sent a note to clients on Wednesday, outlining five reasons to buy Facebook despite the influx of new shares. He said the company has “cracked the mobile code,” and strong user engagement and its growing ad exchange and Instagram business are also positive factors.
“Bottom line is that mobile is now a tailwind for Facebook, as apposed to the headwind that it was just a few months ago,” Anthony wrote.
Sweet of IPO Boutique said the possibility of taxes rising and other issues related to the so-called “fiscal cliff” crisis apparently have been baked in to the shares and have not discouraged investors.
Wedbush analyst Michael Pachter said several factors may have also pushed the stock up.
“Clearly, the lockup expiration is priced in,” he told MarketWatch. “Clearly tons of longs have been waiting for it today. Clearly, the volume isn’t as great as the unlocked shares would suggest. And the shorts were hoping it would go down and they’re covering.”
“You’ve got a perfect storm of things that would drive the stock higher,” he added. “It’s a matter of supply and demand. The supply did not materialize the way people thought it would. And demand is reviving now.”
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