Not sure if you noticed today that FaceBook (FB) has plunged over 6% today to below $20. This is over 44% drop from its peak reached on the IPO day at $45. You may remember that I talked about how ridiculous it was for the FB IPO priced at 100 times its earning and it was doomed to plunge. I just did not expect it would come down so fast so soon! So what's the reason for today's severe decline? It turned out that there were 270 million shares of FB unlocked today and were sold in the market. In other words, those who got FB options which were vetted today were running away as fast as they could by selling their options, a clear sign of no confidence!
This is just a beginning. There are more to come in the next 6 months or so. See here for FACEBOOK LOCK-UP RELEASES.
In a nutshell, there will be about 2 billion FB shares unlocked and eligible for sale in the next 4 months, which is about 70% of FB's total outstanding shares. When everyone is running to exist, you know what it means for the underlying stock. It puts a huge pressure on the stock price. I read somewhere about its book value, which is only about $7-8 per share. So there is likely more room for FB to drop. I will stay away from it and may even think to short it if it shows a dead cat bounce someday.
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