Facebook shares reach a record low

Facebook has lost half its value since its May initial public offering, tumbling to a record low after the lifting of restrictions on share sales by its biggest investors.

Shares in the world’s largest social networking service dropped as much as 4.4%, and were down 4.2% to $19.03 at 3.58pm in New York. The number of shares available for trading increased 60% yesterday.

The decline reflects concern that more sales will follow in the coming months as additional lock-ups expire and as the company struggles to wring sales from a growing customer base, Rory Maher, an analyst at Capstone Investments said.

“Anytime you have a lot of shares come out on the market like that, it’s going to put some pressure on the stock. They’re still figuring out the best way to optimise their core business. And they haven’t quite done that yet.”

The 6.3% drop in Facebook shares yesterday was the second-largest post-lock-up decline among companies that have gone public since Jan 2011.

Only social game maker Zynga fell more, losing 7.9% on the first day that insiders could start selling their stakes, data compiled by Bloomberg show.

That was the largest one-day post-lock-up descent among the 20 biggest initial public offerings since Jan 1, 2011. Under restrictions worked out with IPO underwriters, early investors agree not to sell their holdings for a period after a market debut to keep from flooding the market with shares.

The shares freed up yesterday represent 14% of the 1.91bn that will become available for sale in the coming nine months. The next expiry comes between Oct 15 and Nov 13, when restraints are removed on about 243m shares. Lock-up expires on about 1.2bn shares on Nov 14, and for 149.4m shares a month later. A final round comes May 18, 2013, with 47.3m shares becoming available.

Through yesterday, Facebook shares had lost 48% since the May 17 IPO. Even so, some investors probably are not convinced that the stock will not fall further, said Erik Gordon, a professor at the Stephen M Ross School of Business at the University of Michigan.

“It might not be rational for the shareholders to sell all at once, but when someone in a theatre yells ‘fire,’ people don’t act rationally, they stampede to the exits,” he said. “It might be fatal to your career to be viewed as the last chump to get out.”

Microsoft will probably hang on to its stake after the lockup-ban lifts, a person with knowledge of the matter said on Aug. 10.

Microsoft views Facebook as a strategic partner in the combat against Google, rather than as a near-term moneymaker, said the person, who requested anonymity because the plans are private.

Bloomberg