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“Lockup Rule” Puts Facebook Stock At Its Lowest Thus Far

Radford C. Aug 16, 2012 4
Facebook Stock Price

Screenshot from CNN Money

The top social network’s stock is below the $20 price point again, hitting a new 52-week low of $19.96 all thanks to the lockup rule. Today, the share price dropped 6% and hit as low as $19.91 as of this writing during trading hours. Anyone who has been thinking about picking up Facebook stocks right after the IPO (Initial Public Offering) might want to take a look here.

Facebook gave a heads up about its drop thanks to the expiration of the first lockup rule. The lockup rule is basically a 90 to 180 day period when shareholders are restricted from selling shares. The whole point of the rule is to prevent the market from being completely flooded with company stock right after the IPO. Today marks Facebook shareholders’  91st day and now leaves them to think about diversifying their assets.

With shareholders now having the ability to sell their stock, basic logic tells us that there will be more supply than demand. Thus, share prices will drop once additional holdings are available. This is especially more impactful if any of the Facebook executives, who own a percentage of the company, decide to sell a significant portion of their shares back into the market. So how many would be available? About 271 million of them.

Some of those investors who were locked up until today include Microsoft, Accel Partners, Tiger Global Management, Goldman Sachs and Peter Thiel.

When the company went public, the shares opened at $42. After the NASDAQ debacle and several polarizing reports of Facebook’s viability, many analysts believe that the company still has some growing to do and have advised new Facebook shareholders to purchase stock as a long term investment instead of a short term gain.

Via »TechCrunch