Facebook Hits Record Low as Insider Stock Sale Lock-Up Period Ends

Facebook's IPO -- in which insiders cashed out $10 billion -- now ranks as "the worst performer among all large IPOs on record," according Bloomberg.

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David Paul Morris / Bloomberg via Getty Images

The Facebook Inc. logo is displayed in front of the company's headquarters in Menlo Park, Calif., May 18, 2012, on the day of the company's initial public offering. Since the IPO, Facebook shares have plunged 45%.

Facebook’s startling free-fall continued Thursday as the three-month lockup period preventing insiders from selling company stock expired. After going public at $38 in May, Facebook shares hit an all-time low of $19.87. Following a massively-hyped IPO, Facebook shares are now down a vertigo-inducing 45% in just three months — even as the index that tracks the NASDAQ, where Facebook went public, is up 20% over that time. The latest Facebook dive came just 90 days after a highly-touted public stock offering that generated massive wealth for company insiders.

As we discussed Monday, Facebook insiders cashed-out to the tune of a staggering $10 billion during the IPO, when the company was worth $100 billion. It is now worth $43 billion. Facebook is the most prominent member of what Wall Street blogger @zerohedge has called Morgan Stanley’s “triangle of IPO terror.” Throughout the last 18 months of the social media tech IPO boom, Wall Street giant Morgan Stanley was the go-to bank for tech IPOs, frequently occupying the coveted upper-left IPO designation that refers to the bank’s lead underwriter status.

The other two companies in Morgan’s Stanley’s ignominious trio are Zynga (down an impressively-bad 68% since going public), and Groupon (down a mind-numbingly awful 80% since its IPO late last year.) All three companies are currently the subject of shareholder litigation. In the wake of each company’s plunge, Morgan Stanley has faced criticism for not pricing these securities accurately.

(MORE: Was the Social Media Tech IPO Boom a Big Scam?)

As the 3-month lockup period concluded Thursday, certain insiders  — including Silicon Valley billionaire Peter Thiel, Accel Partners, Greylock Partners, and Wall Street giant Goldman Sachs — were permitted to sell shares. We won’t know for a few days which insiders actually cashed out as the lockup expired, but the company’s 6.3% plunge Thursday — bringing the share-price to a new record low — indicates that someone was doing heavy selling.

After months of telling employees to disregard Facebook’s stock plunge, company founder Zuckerberg acknowledged to his troops earlier this month that watching the swoon has been “painful,” according to The Wall Street Journal. Zuckerberg’s net worth dropped by $600 million Thursday, but considering that he cashed in over $1 billion of equity during the IPO and is still worth $10.2 billion, it’s hard to feel too much sympathy for the newly-married billionaire.

The lock-up that expired Thursday applied only to early Facebook investors who sold stock in the IPO, not employees, including Zuckerberg himself. Employee lock-up expiration dates will occur three times this fall, in October, November (the big Kahuna, with 1.2 billion shares from insiders becoming unlocked), and December, and then again next May. In other words, we could be in for several repeat, command performances of Thursday’s sell-off.

Facebook’s IPO was supposed to be a crowning acheivement for the eight-year-old company, as well as its Wall Street bankers. Instead, it’s turned into an epic debacle that’s reinforced the stereotype that Wall Street tech IPOs are little more than shady gambling dens, rigged for the house and deep-pocketed insiders, with average investors as suckers. It didn’t help that trading was delayed by 30 minutes on the company’s big day, and trades for millions of shares were never confirmed. It was a terrible embarrassment for NASDAQ, prompting one trading executive to brand the debacle “arguably the worst performance by an exchange on an IPO ever.”

(MORE: How Low Can Facebook Go?)

But it wasn’t just NASDAQ’s performance that was “the worst ever.” With Thursday’s stock swoon, Facebook’s IPO now ranks as “the worst performer among all large IPOs on record,” according to data compiled by Bloomberg. That’s quite a designation for what was supposed to be the apex of Silicon Valley’s high-profile social media debuts.

Facebook’s botched IPO has spawned numerous shareholder lawsuits. Irate shareholders have charged that analysts at Facebook’s underwriters, including Morgan Stanley and every other major Wall Street bank — Facebook had no less than 33 participating underwriters — lowered their financial forecasts for favored clients, but neglected to inform the investing public. One lawsuit charges that the company’s IPO documents “were negligently prepared and failed to disclose material information about Facebook’s business, operations and prospects.” Another lawsuit charges that Facebook hid challenges to its mobile advertising business that would have been material information for prospective Facebook investors.

Stock market investors should not harbor any illusions about risky, high-profile technology offerings. This is not Romper Room. Venture capitalists and early employees took big risks, and they deserve to be rewarded. The various offerings raised billions for these companies, and in so doing were successful. As a general matter, stock market investors should not expect sympathy for bets gone bad — unless, of course, securities fraud or other malfeasance occurred, as has been alleged here. But even if no wrong-doing is ever proven, the extreme contrast between the massive insider cash-outs at Facebook, Zynga and Groupon and the shockingly bad performance of each company’s stock makes the IPO process look bad. And that could have a chilling effect on a crucial function of our capital markets — the ability for truly-promising young companies to raise capital from the public.

MORE: Facebook IPO Furor: Feds Probing Deal Over Insider Bank Warnings

36 comments
jennamyles
jennamyles

 I can't imagine why a company with no product would have so many problems with their market value. @DonQuixotic:disqus,

Are you tired of bad finance? Are you working more than you are getting paid? If so, this may be just the right thing for you...  http://bitly.com/tv7YNH

jennamyles
jennamyles

 I can't imagine why a company with no product would have so many problems with their market value. @DonQuixotic:disqus, Are you tired of bad finance? Are you working more than you are getting paid? If so, this may be just the right thing for you...

http://bitly.com/tv7YNH

Justapooorpeddler
Justapooorpeddler

As in all criminal trials full disclosure through discovery is mandatory. It should have been part of the Dodd Frank bill, if it had guilt or innocence would have been apparent and stock holders would know where they stand. If crony capitalism and crony republicanism prevail the stock market will callaps. We have a clear choice in Nov;  Voting to Regulate an out of control industry or allowing the Delta Queen gambling casino on wall Street to continue running a crooked game.

hostrauser
hostrauser

Stockbroker: "What are you doing? This is the stock exchange! There's no money to steal!"

Bane: "Really? Then why are *you* here?"

(from "The Dark Knight Rises")

Yakesh Khanna
Yakesh Khanna

Absolute greed of the promoters. The only reason to go public was to make money out of hyped investors. 

John Luma
John Luma

Yes. And let's not forget -- Republicans want citizens to believe the banking, Wall Street and home loan industries NEVER NEED REGULATION. DEREGULATION is their cry -- the people need no protection! Ever! It's unAmerican. Socialist. Anti-business. What Republicans actually do know is, deregulated financial markets allow the greed merchants to line their own pockets at the expense of the middle class. Wake up America! The financial leadership class DOES NOT CARE what happens to you and me.

Alana Dill
Alana Dill

annnnd.... it's time to back up. Everything. 

Lynn Freeland
Lynn Freeland

... and this is the stock market that Romney-Ryan want to shift my retirement money into??? Gee, thanks ...

Josh Fields
Josh Fields

 Someone needs to learn about diversification and low risk investments. Facebook would have never been invested in by a low risk fund.

Chinga_Tu_Madre
Chinga_Tu_Madre

How can we get the stock to plunge to under $2.00? Because that would be great. Anybody that invests in stocks for a return should lose it all. 

Leonard Waks
Leonard Waks

Veteran says that most people find facebook useless. If this were true, then few would use it and the entire story would disappear. In fact most people find it useful and many addictive. Quixotic says the company has no product. This is a bit like saying the phone company has no product. The problem is that the product is given away for free, like the old broadcast TV programs, while advertizing  sponsors can't yet figure out how to get a decent ROI on their investments. FB needs to discover a viable business model, not a new product or one that most people find useful.

bhayzone
bhayzone

 The problem with FB is not so much about its product or service, but more about valuation. With the kind of valuation facebook has today, it will have to discover a rocking new product and a invent a rocking new business model every quarter for the next decade or so. That doesn't seem quite sustainable. Every quarter that facebook fails to deliver a game changer, its stock will be severely punished. I don't have any FB stock, but will buy some when it reached $10.

Talendria
Talendria

Anybody who didn't see this coming was an idiot.

AnonymousViews
AnonymousViews

Why are companies like groupon even classified as technology IPO's. Sure they use internet but at the core what is groupon. A fancy name for sure and a coupon marketing company.  

DoMi54
DoMi54

Karma. Just sayin.......

DonQuixotic
DonQuixotic

I can't imagine why a company with no product would have so many problems with their market value.

Torg
Torg

How is Facebook like and not like Google?

DonQuixotic
DonQuixotic

I don't equate a social network to a search engine/cloud and email service/OS and app provider/etc.

Queueing
Queueing

Not to mention the work Google is doing with self-driving cars.  It's investments in this type of forward-thinking technology and the innovations that well funded, focused research can produce that will propel Google forward.

Look at the companies doing work in commercial space flight.  In 20 years they will be the huge names in the private sector.  Think Apple in the 80's...

Frank Malloy
Frank Malloy

Exactly. It's a web page, and nothing more. There's no technology, and no added value. It's a repository for comments and photos. 

People don't go to Facebook to buy things or research products they want to buy. They post pics of drunken nights out, boring status updates, and click a "Like" button.It's just a web page that a lot of people happen to visit. And that's worth $100B to Wall Street people? 

quietstorms
quietstorms

Google is more diversified in their product offerings but they don't make much from it if any. Virtually all of their revenues still comes from search. I'm sure there were many a decade ago who thought Yahoo was unstoppable.

Most of these tech companies aren't built to last. Those that generally do have a service or a product a customer is willing to pay for.

quietstorms
quietstorms

They're an ad-based revenue company just like Facebook and they're both reliant on user data to make money. You're just splitting hairs.

DonQuixotic
DonQuixotic

No problem.  I wasn't even counting Google's tangible products these days or all the research they fund.  Fact is, facebook doesn't really do any of these things, they're on their way to being the next MySpace.

Torg
Torg

Thanks. It was a real question. I'm trying to think about what the biggest gaps are between the companies when it comes to estimating their value.  Maybe it's, in part, the viability of the ads they run?

Josh Fields
Josh Fields

 Google didn't have any products either (until Android.) Not saying you should buy Facebook...but there are a lot of companies that don't have physical products.

MelodysuhWaltcott
MelodysuhWaltcott

Mary replied I'm impressed that you able to get paid $7616 in four weeks on the network. did you see this(Click on menu Home)

bhayzone
bhayzone

There's a significant difference between Google and Facebook. Google mines more than half (conservatively) the worlds data that is exchanged over the internet. Facebook just mines data that is exchanged on its own website. In other words, Google mines data from more than half the worlds web properties. Facebook just mines data from ONE website. The quality of data on Facebook (measured by how interesting it is to marketers) is mediocre at best.

US_Army_Veteran
US_Army_Veteran

I find FB useless and most Americans do. People might use it since it is free, but I don' think very many people actually care whether it goes or stays. 

KNELIA
KNELIA

I have  a question !

KNELIA
KNELIA

I have a  question

coinone
coinone

Facebook is forbidden in China. What a pity!

awyeahh1
awyeahh1

It's not a pitty, It's a blessing, LoL