Think about this; Facebook shares skyrocketed 20% after earnings beat Wall Streets expectations. Facebook broke up their locked up shares into a series of expiration dates to preserve the share price but that could backfire. Now I'll show you how the perfect short storm brews.
· Generally speaking whenever a stock soars that fast in a day the next day it will drop a little as people take profits.
· When the first group of FB shares (270 million) unlocked FB fell 6%.
· Now 230 million shares are set to become unlocked Monday. Employees for the first time will be able to sell their shares. So knowing there will be at least some shares sold and FB shares will drop Monday; who will buy FB on Friday? If you don't like FB you would sell, if you like FB you will either sell and repurchase your shares after Monday or wait until after Monday to purchase if you don't own any already.
· On Monday Wall Street will be looking at FB to see what the employees do. If they sell maybe they are saying they don't believe in the company and Wall Street will also begin to sell.
· Of course on Monday employees will sell at least some of their shares, they have been waiting a long time for their money. They have cars and houses to buy, bills to pay, other things they might want to invest in. The recent 20% jump might signal a good time to sell their shares before they fall back into the teens. But they also might sell because they will be thinking of Nov 14th
· If the employees do sell it signals to everyone else that maybe they should sell too.
· Oh yeah I mentioned Nov 14th earlier, that is when 1.2 billion shares; yeah billion with a B become available. So then FB faces the same dilemma as they do today. Why would you buy FB going into NOV 14th? Even if you like FB you should wait until after that date to buy and if you own it you might sell before the date.
· On November 14th 1.2 billion of insiders and VC's shares become unlocked and FB is sure to drop even more.
One more thing; capital gains taxes are set to increase in 2013 meaning that people will be more inclined to take profits before the end of the year. I could only imagine this would add to the pressure to sell your Facebook stock.
Lastly there will be one last bunch of locked up stocks which will get released in mid December.
No matter how bullish someone might be on FB I just don't see any reason to buy before the Nov 14th date.
Hey maybe it won't be that bad but if everything falls into place FB could fall to new lows in just 3 weeks.
What do you think?
Disclosure: I am short FB.