Facebook’s employees remained on the sidelines as Facebook’s shares plummeted through the summer and in August, when 271 million more insider shares were released from lock-up. Peter Thiel, a very early investor in Facebook and a member of the company's board of directors, sold the majority of his rich Facebook stock in August, helping to push the stock down to its all-time low of $17.73 in early September.
But on the last day of October Facebook’s employees are free at last to join the cashing-in party and sell some of their stock. Happy Halloween, guys. The last big surprise thrown at Facebook's employees came from Hurricane Sandy, which shut down the U.S. stock market just as some 230 million Facebook shares came off their lock-up restrictions on Monday. The bad weather effectively extended the stock lock-up for Facebook employees since there was no market for their stock.
Still, despite all the setbacks, some Facebook employees remain in good financial shape because they were issued restricted stock units and not stock options, meaning their shares are worth something—and in the case of employees who joined the company prior to November 2010 their shares are probably worth quite a lot. Restricted stock units, Mark Zuckerberg’s creative way of keeping Facebook private for a prolonged period of time, have also acted as a kind of safety net for many Facebook employees and probably kept employee morale from being completely obliterated.
But those RSUs are now about to provide yet another slap-in-the-face to Facebook’s IPO investors as Facebook employees who would have otherwise been holding worthless stock options will no doubt sell the shares they have been awarded for whatever value they fetch in the open market. That will surely continue to put downward pressure on the stock. Facebook’s shares already sank by 5.5% on Thursday and Friday, wiping away some of the gains that occurred when investors massively bid up the stock to $23.23 last Wednesday following the release of third-quarter financial figures that impressed the market, which included signs of Facebook making key gains in the mobile arena. Facebook shares were down about 2% in pre-market trading and opened 4% lower.
In Silicon Valley, people have learned the lessons of the first Internet boom and bust—there will be lots of stock selling from Facebook employees, even though the shares are trading around $22 and not $38. Those engineers and coders will swallow hard and press the sell button. This selling pressure will be relentless in the upcoming weeks as another 777 million shares are freed from lock-up restrictions in mid-November. Hurricane Sandy will probably add to this downward momentum by effectively bunching these big lock-up releases closer together. Even more shares become eligible for sale in December and May. Zuckerberg better keep delivering big revenue growth or things could still get ugly again.
