Facebook Lock-Up Expiration Adds 271 Million Shares

Facebook's (FB) underperforming stock is about to face another test, but whether stern or mild is hard to say.

The lockup period on 271 million Facebook shares owned by insiders who already sold some shares in the IPO expires on Thursday. If a sizable number of those shares are sold, the stock could fall.

A lockup period prevents pre-IPO investors and company executives from selling big blocks of shares too soon after an initial public offering. But with the stock doing so poorly — closing at 21.17 Wednesday after starting trading May 18 at $38 a share — many analysts don't expect too many unlocked shares to trade right away.

A Times Square sign told of Facebook's May IPO. Buyers of initial shares may rue the "True Blood" billboard. View Enlarged Image

"I don't think the group eligible to sell their shares will need the money," said Michael Pachter, an equity analyst at Wedbush. "It's the same group that sold in the initial public offering" and pocketed a nice profit.

Besides, said Pachter, "It would send a bad signal if they start flushing the stock."

Those eligible to sell shares include Zynga (ZNGA) founder Mark Pincus, Netflix (NFLX) founder Reid Hoffman and Pay-Pal co-founder Peter Thiel — all early investors. Thiel and Hoffman are on Facebook's board. Also unlocked are shares held by venture capital firms Accel Partners and Elevation Partners, and shares held by co-lead IPO underwriterGoldman Sachs (GS) and Microsoft (MSFT), a Facebook ally in terms of their mutual competition with Google (GOOG) and Apple (AAPL).

"We think much has been made of a lockup expiration occurring, but do not necessarily see a significant negative impact," Scott Kessler, an analyst with S&P Capital IQ, wrote in a report Tuesday.

But Facebook seldom follows expectations.

Its highly anticipated IPO was considered a dud. One reason was the surprising disclosure just before its IPO that the company was struggling to make money off its mobile users, and it still is.

"I don't have confidence in anything they put out," said Francis Gaskins, founder of ipoDesktop.com.

Complex Social Experiment

Getting a handle on Facebook isn't easy. As the world's largest social networking company, it's been one big social experiment for analysts trying to evaluate the business model.

Even reports of Facebook's market capitalization, a standard measure for what a company is worth, vary by some $13 billion.

A company's market cap is calculated by multiplying its shares outstanding by the current stock price.

At the basic level, it's simple. Yahoo Finance and Google Finance on Wednesday showed Facebook with a market cap of about $45 billion. That comes from multiplying the current share price times 2.14 billion shares outstanding. But Facebook says it's more accurate to use 2.74 billion shares in the calculation, which results in a $58 billion market cap.