These two hit songs by Steely Dan and Pink Floyd may now be the theme songs for Facebook until 2013. We have written in the past of the coming Tsunami in freely trading shares in Facebook (FB). Trading in the stock last week was in the range $17.55 to $19.42 and we see new resistance for FB shares in the near term to be $20.
Reading Facebook's June 30th 10Q once again is something we strongly suggest. This small but potent risk factor excerpt that really sums up the situation of "Float Bloat" that we believe will continue to hamper this name for at least the next four months:
"The price of our Class A common stock could decline if there are substantial sales of our common stock, particularly sales by our directors, executive officers, employees, and significant stockholders..."
There have been substantial sales to date and more likely than not these will continue. All investors who want to own FB should wait until the first quarter of 2013 to buy. As of August 15th, Nasdaq reported the short interest in FB at 87,984,040 shares. This is a far cry from the 1.48 billion shares that will be coming into the float by December 2012 not including the shares held by Mark Zuckerberg, the controlling shareholder, founder, CEO and Chairman of Facebook. This is nearly three times the size of today's float and can only add downward pressure on the stock as short-sellers see this as a "no-brainer" for a company whose growth prospects are still being developed.
Moreover, the shares have been buoyed by news that Mr.Zuckerberg would not be selling his shares for at least a year. How could any investor take comfort in that disclosure when he is "THE" control person and can't sell any shares because of his inside information on the company unless everything confidential is out in the open. The company has confidential treatment on exhibits it has filed with the SEC and has asked them to be withheld. Could Zuckerberg ever really sell his shares without a new "follow-on" offering with all the disclosures needed for him to sell? This is highly doubtful in our opinion and the company's announcement of this as an 8K filing with the SEC should be viewed as "highly promotional." We have taken some excerpts and copied them below but we highly recommend reading the entire document in the link above. We ask the question "Have they inadvertently established $19.09 as a ceiling?":
"Assuming the price of our common stock at the time of settlement was equal to $19.09, the closing price of our Class A common stock on August 30, 2012, ....."
The information below gives the synopsis of what Facebook's capitalization chart looks like subject to certain caveats:
"Additional Share Information
As of August 30, 2012, we have approximately 692 million shares of common stock eligible for sale in the public market,... The remaining outstanding shares of our common stock... will be eligible for sale in the public market in the near future as set forth below:
Date Available for Sale into Public Market
Number of Shares of Common Stock
|October 29, 2012||approximately 124 million shares underlying net-settled Pre-2011 RSUs held by then-current employees as of October 15, 2012 and approximately 55 million outstanding shares and approximately 55 million shares subject to stock options held by then-current employees as of October 15, 2012 other than Mr. Zuckerberg|
|November 14, 2012||approximately 749 million outstanding shares and approximately 28 million shares underlying Pre-2011 RSUs not held by then-current employees as of October 15, 2012|
|December 14, 2012||approximately 156 million shares held by the selling stockholders in our IPO other than Mr. Zuckerberg|
|May 18, 2013||approximately 47 million shares held by Mail.ru Group Limited and DST Global Limited and their respective affiliates|
We believe the company's own words tell the story about the direction of Facebook stock. Until they have created a well established business model with growth prospects that are believable, Facebook shares will be stuck under $20 despite the good intentions of analysts with lofty price targets. We also believe the 8K should have included another chart which includes the Zuckerberg shares just in case he changes his mind on sales of his shares. To the best of our knowledge he has not signed a new lock-up agreement and his lock-up expires on October 29,2012 per the 8K described above.
Additional disclosure: We tried to keep the copies to the company's filings to a minimum and highly encourage investors to read them from the SEC site links we have provided.