Update: Facebook's IPO Pump and Dump

Facebook's dip cuts gains as lockup ends

Facebook's stock plunge has robbed Goldman Sachs Group and Microsoft Corp. of much of the potential gain they could unlock as soon as this week, when a ban on sales of insiders' shares begins to*lift.

While the end of the lockup has the potential to put additional pressure on the stock price, owners such as Goldman Sachs, which now has a stake worth about $900 million, face a dilemma: whether to sell now and realize a smaller profit or sit tight and risk further*losses.

"It's not as if they have to sell all their holdings the moment the market opens," said Brian Wieser, an analyst at Pivotal Research Group, who rates the stock a buy. "They want to be rational about*this."

Still, over the coming nine months, about 1.91 billion shares will be freed up, compared with fewer than 500 million now available for trading. That flood of shares is a deterrent for some potential buyers, said Herman Leung, an analyst at Susquehanna International Group.

"It's one of the No. 1 issues on investors' minds right now," Leung said. "Even the investors that I talk to who want to buy the stock and like the company are not sure if they can stomach the*lockups."

Beginning Thursday, investors including Goldman Sachs, Microsoft and Accel Partners, which together control more than 200 million shares in the Menlo Park social-networking giant, can sell them for the first time since the May 17 initial public offering, according to a regulatory filing. It's the first in a wave of lockup expirations in the coming months that will quadruple the number of shares that can be*traded.

Microsoft will probably hang onto its stake after the lockup-ban lifts, a person with knowledge of the matter said late last week. Microsoft views Facebook as a strategic partner in its battle with Google rather than as a near-term moneymaker, said the person, who requested anonymity because the plans are*private.

Facebook, worth $52.7 billion as of Aug. 10, has lost about $38.8 billion in market value since the IPO, making it the worst performer among all large IPOs on record, according to data compiled by*Bloomberg.

Facebook shares rose in early trading Monday before dropping by 1 percent to finish at $21.60.

Ashley Zandy, a spokeswoman for Facebook, declined to comment, as did Andrea Raphael, a spokeswoman for Goldman*Sachs.

Second*thoughts

Facebook's post-IPO plight contrasts with the experience of Google, which held its IPO in August 2004. Google, the most valuable U.S. Internet company, rose by more than 70 percent within two months and more than doubled by the end of that year. While shares declined on the days following lockup expirations in November and December of that year, on the day the biggest lockup ended in February 2005, shares rose 3*percent.

Facebook shares have declined 43 percent since the IPO, and the stock has failed to close higher than the IPO price of $38 since its first day of trading. The company had initially proposed a trading range of $28 to $35 before the number of shares in the IPO was boosted, as well as the price*itself.

The stock has been weighed down by concerns over growth, which were amplified by the company's inaugural earnings report as a public company. Second-quarter sales grew 32 percent, down from 45 percent in the previous three months, figures released last month showed. The shares have lost 19 percent since the July 26 report. Revenue is forecast to rise 29 percent in 2013 and 28 percent in 2014, according to the average estimate of analysts compiled by*Bloomberg.

The stock's drop has been large enough to give investors second thoughts about selling now, Sundaram*said.

"Will there be a significant downward move?" he said. "Probably not, would be my guess, given that stock has already fallen quite a*bit."

Other*investors

The prices at which shares held by employees, insiders and other investors were acquired can vary widely, meaning some would profit by selling shares even now. Microsoft acquired its stake - currently worth $571.9 million - in 2007 at a $15 billion valuation, while venture-capital firm Accel Partners invested in 2005, when Facebook had a value of about $100 million. Its stake is now worth about $2.83 billion. The Goldman Sachs investment valued Facebook at $50*billion.

Other large early investors include Mail.ru Group Ltd., a Russian Internet company, and Digital Sky Technologies, a Russian investment company. Individuals with large stakes include Facebook co-founder Dustin Moskovitz and Mark Pincus, chief executive officer of Zynga.

Pivotal's Wieser estimates about 55 percent of the 268.1 million shares that are liberated by Thursday could be sold as some investors seek to secure gains. The remaining 1.66 billion shares will be released at later*dates.

Brian Womack is a Bloomberg writer. E-mail: bwomack1@bloomberg.net

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Sent from my iPhone 4S

Social media is a fleeting thing. Remember MySpace? What was the one before that? Cant remember can you.
It wont be long and people wont remember MySpace, Facebook will be an oh yeah I remember when they were it.
The perceived value was not the true value and somebody made a mistake in calculating the true value of the organization.
Maybe it is time for Bain Capital to come in and turn them around.

Bain doesn't do just anyone. They have to be viable.

I was only kidding about Bain.