Breakout

Facebook Shares: Should Outsiders Buy What Insiders Are Selling?

Jeff Macke
Breakout

Pssst... wanna buy 804,000,000 shares of Facebook (FB)?

Shareholders of the social networking king hope the answer to the above is yes, as yet another share lock-up ends today. It's the latest in a series of shares freed up for early investors to sell in the open market. The 804 million shares potentially coming for sale today compare to 500mm in other post-IPO sales and 421 million shares at the $38 IPO price last May.

Though co-founder & CEO Mark Zuckerberg has vowed not to sell any more of his stake until September of next year, seemingly content to sit on the more than $1 billion he raised in the IPO, other high profile executives haven't been so restrained. Chief Operating Officer Sheryl Sandberg cashed out of $11 million worth of shares earlier this month and still holds a greater than $350 million stake.

With Facebook's stock down nearly 50% from its IPO price and still groping for a bottom, the question is why outsiders would once again want to line up to buy what savvy insiders with greater information want to sell. On August 16th 271 million shares held by investors and directors involved in the IPO were unlocked and shares dropped 6% on massive volumes, closing in the teens for the first time.

Today marks the biggest potential liquidity event remaining in the company's roughly 1.5 billion post-IPO share release. Presumably FB's nearly 50% drop during its life as a public company would discourage a flood of selling but the same could have been said in August. Bulls can be encouraged by the Facebook's third-quarter earnings results which demonstrated some traction in mobile ad sales and less reliance on partners like Zynga (ZNGA) for revenue creation.

The applause from FB's October 23rd release has all but completely faded. Despite the bull's fervent hopes that good numbers could prop up shares through the expiration, FB has given almost all of the 19% post-earnings pop, closing yesterday at $19.86 compared to $19.50 before the numbers hit. Facebook's all-time low is $17.55.

Related: Facebook Shares Pop Ahead of October Expiration

Should outsiders buy what insiders are selling? The answer has less to do with mechanics of expiration than fundamentals. Facebook is still a $43 billion market cap company trading at 184x trailing earnings and openly trying to figure out what it's going to be when it grows up. If the company has bottomed there's no rush to get long today.

**Please answer our poll question below: Do you think Facebook (FB) will end this year above or below its IPO price of $38 a share?**

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