Facebook (NASDAQ:FB) just cannot catch a break. First it was the "botched" IPO. Then all the warnings to not buy the stock. Then its somewhat disappointing first earnings report as a public company, which sent the stock to all-time lows. And it does not end there. Another important date for Facebook bulls and bears is Aug. 19, 2012. That is the lockup expiration date, defined as the first legal day on which insiders can sell (read: dump) their shares.
Since the social media stocks are usually looked at as a group of their own, I will take a look at the performances of LinkedIn (NYSE:LNKD), Groupon (NASDAQ:GRPN), and Zynga (NASDAQ:ZNGA) until the lockup period and on the lockup date (and even a little beyond). This, we hope, will give some insights into the upcoming Facebook lockup expiration for those interested in this trade.
A Look at Other Numbers
- Before getting into the details, a point to be noted is that Groupon, LinkedIn, and Zynga all had the usual 180 days lockup period, but Facebook's insiders get the chance to unload their shares after just 90 days. Is that called the "Zucker-punch" to investors?
- Groupon has been a nightmare for general investors, falling more than 60% until the lockup date and almost 9% on that day.
- Zynga, the stock that mimics Facebook's price action the closest, fell 40% until the lockup expiration and about 8% on the expiration date.
- LinkedIn is the stock that clearly stands out from this group, even though it has its own valuation and growth issues.
- But even LinkedIn was down close to 7% on Nov. 21, 2011, the day its lockup expired. It, however, rebounded to close down by just 2%.
- Facebook has already lost close to half of its opening share price due to valuation and growth concerns, plus the earnings report. So with the Facebook bears already having a stronghold (in an up market) over the Facebook bulls, one can only wonder what the damage will be on Aug. 19 and beyond.
*The share price fall for Facebook is as of this writing, since we haven't reached the lockup date yet.
- For Existing Bears: If you are already short Facebook, you have all the reasons to hold on to it, as the supply of shares is bound to shoot up this month.
- For New Bears: You are likely not very comfortable with shorting if you are not short the stock already. So simply stay away from either side of the trade.
- For New Bulls: If you think the 45% fall from the opening price is too big for a company with great "prospects" like Facebook, hold on. You will almost certainly get a better entry point due to the lockup expiration. Count on Europe to add to the woes as well.
- For Existing Bulls: Why haven't you sold yet?
Based, at least, on how "friends" Zynga, Groupon, and LinkedIn fared on their respective lockup expiration dates, the bears appear set to have another field day with Facebook. Except for LinkedIn, the others have struggled past their lockup expiration dates as well.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.