Facebook Stock Jumps, But Here Comes a Mountain of Lockup Shares
Shares of Facebook rose upward of 20 percent as of midafternoon on Wednesday, a four-point rise that brought the price to $23.57.
But the company shouldn’t celebrate too hard, too fast. We could see millions of Facebook shares flood the market on Monday, the day millions of restricted stock units (or RSUs) are eligible for sale on the public market.
The concept of the RSU is fairly straightforward. It’s a way to retain employees by giving them stock. But as with any IPO, the company employs a lockup period limiting the sale period to a given date, so as not to affect the company adversely. So, for example, many stock sales limitations were in effect for employees as Facebook went public. As a result, the stock price didn’t drop as a result of employees cashing out fast. (It dropped anyway, for other reasons, but that’s another story.)
So, through the end of the month, those Facebook insiders will now be able to sell their stock, potentially putting on the table more than 230 million Facebook shares. That could certainly have an effect on the company’s share price.
And, just a few weeks from now, Nov. 14 is an even bigger day: Another lockup expires, putting more than 1.2 billion in employee RSUs on the table.
It could be a relatively good time for employees to sell, too. Wednesday’s bump in share price comes in the wake of positive Q3 earnings results yesterday, in which the company reported that 14 percent of its $1.262 billion in revenue was derived from its mobile products.
Mobile, in particular, has been a point of contention for Facebook. The large consumer shift from desktop to mobile devices over the past two years has often been cited in criticism of the social giant, which makes the bulk of its revenue in advertising that appears alongside of content inside the network. The limited space on mobile devices makes it much more difficult for Facebook to insert its desktop ad product into the stream without feeling obtrusive.
CEO Mark Zuckerberg “wants to dispel this myth that Facebook can’t make money in mobile,” he said on a conference call with analysts on Tuesday. COO Sheryl Sandberg backed that assertion up, citing the potential of a number of Facebook’s recently launched advertising products and the impact they could have on revenue. While mobile app ads, promoted posts and gifts are all relatively new to Facebook’s monetization strategy, the company is bullish on them in the long term.
The wild card, however, remains Facebook’s payments business. Facebook posted revenue on the “payments and other” line at $176 million in the third quarter, a decline of 9 percent quarter on quarter, down from $192 million. The company largely attributed that to the underperformance of Zynga’s social games, which saw a 20 percent decrease compared to the year-ago quarter.
Whatever the case, Facebook’s stock isn’t out of the woods quite yet. Come Monday, we’ll be keeping an eye on the Nasdaq.