One of the scariest things about IPO stocks is the lockup expiration date. This is the date when insiders, like employees and venture investors — who we previously “locked” into holding their shares — can sell their stock. Often, these insiders hold the vast majority of a freshly public company’s outstanding shares. The result? When the lockup expiration date hits, if a bunch of insiders want to sell their stock, that will put tremendous downward pressure on an IPO stock.
Just look at some of the headline IPO stocks that had their lockup expiration dates in the first half of October, including African e-commerce company Jumia (NASDAQ:JMIA), social media platform Pinterest (NYSE:PINS), and video communications company Zoom (NASDAQ:ZM). Month-to-date, all three stocks are down — while the S&P 500 is up an impressive 2% in October — with ZM stock down a whopping 20%.
Also of note: two of those three IPO stocks, Pinterest and Zoom, were big winners before the lockup expiration. In other words, lockup expiration dates are scary for all IPO stocks, not just the bad ones.
With that in mind, let’s take a look at seven IPO stocks whose lockup expiration dates are looming around the corner. For some of them, the lockup expiration could cause serious pain in shares. For others, not so much.
Beyond Meat (BYND)
Source: Sundry Photography / Shutterstock.com
Lockup Expiration Date: Oct. 29
The next big lockup expiration that investors should be watching is the lockup expiration of alternative meat producer Beyond Meat (NASDAQ:BYND).
Due on Oct. 29, Beyond Meat’s lockup expiration will dramatically expand the stock’s float. About 48 million shares will be unlocked. That represents roughly 80% of the company’s total outstanding shares. If the owners of those shares decide to sell, that could put tremendous downward pressure on BYND stock.
The problem is that most might decide to sell. Why? Because Beyond Meat has had one of the most successful IPOs ever, and the most successful of the past decade. At one point, the stock was up nearly 10-fold from its IPO price. Sure, it’s down big from those levels. But, it’s still up 4-fold from the IPO price.
With the stock in the midst of a multi-month plunge and yet still up big from the IPO price, insiders might take this opportunity to sell at elevated prices. If this mentality is broadly adopted by insiders — and it likely will be — then BYND stock could be in for a world of hurt when the lockup expiration hits.
Lockup Expiration Date: Nov. 6
After Beyond Meat, the next big lockup expiration that investors should watch for is the lockup expiration of Uber (NYSE:UBER) due on Nov. 6. On that day, roughly 84% of Uber’s total share count will become available for sale.
That’s a huge number, and the problem is that a ton of those insiders will likely sell as soon as they can.
Here’s the logic. For better or for worse, a lot of Uber’s early employees and investors were attracted to Uber because of former CEO Travis Kalanick and the culture he fostered at the company. Travis has since been pushed out. The aggressive culture which he fostered has also since vanished. Perhaps by coincidence — or not — the company’s growth trajectory has flattened out, and the valuation of the company has plunged.
Those early employees and investors want out. They thought Uber could be a trillion dollar company behind Travis. Now, just as Travis has, many of those early individuals have probably moved on. The problem is that as the early employees and investors, they own a bunch of UBER stock, so when the lockup hits, them selling in bulk will create significant downside pressure on shares.
The implication? Uber could have an ugly lockup expiration.
Luckin Coffee (LK)
Source: Keitma / Shutterstock.com
Lockup Expiration Date: Nov. 13
The other notable freshly-public company that has a lockup expiration date in November is rapidly-expanding China retail coffee chain Luckin Coffee (NYSE:LK).
Luckin Coffee’s lockup period expires Nov. 13. While that means a ton of insiders will be able to sell shares at that date, I’m not terribly concerned about the selling pressure on LK stock.
Why? Because Luckin Coffee has all the ingredients of a stock wherein the insiders won’t sell that much in November. First, the stock is barely up from its IPO price, so there really isn’t that big of a profit for insiders to cash in on. Second, the stock has been much less erratic than other IPO stocks, and has consistently held prices above its IPO price. Third, there’s a ton of Wall Street support here, with pretty much all analysts giving the stock a buy rating, according to YCharts. Fourth, there is a ton of long-term potential here, thanks to Luckin’s robust unit growth potential in a very large China coffee retail market.
Big picture: insiders don’t have much reason to sell come Nov. 13. Thus, LK stock will likely breeze past its lockup expiration without much noise or hassle.
Lockup Expiration Date: Dec. 4
Moving into December, next-gen fashion commerce platform Revolve (NYSE:RVLV) has its lockup expiration date on Dec. 4.
I’m pretty worried about RVLV stock into this lockup expiration for two big reasons. First, the optics are bad. RVLV stock hit the markets with a bang, roaring from an $18 IPO price, to nearly $50 in a matter of a few trading days. Since then, the stock has come off the rails, dropping all the way back to $20. This “pop-and-drop” dynamic gives credence to the idea that this is just another IPO stock that got too hot for its own good, and will continue to adjust downward for the foreseeable future. If insiders with shorter time frames adopt that mentality, then the lockup could bring in waves of selling.
Second, the fundamentals don’t add up. Revolve is being advertised as the new way Generation Z and Millennial consumers love to shop. I belong on the outskirts of both generations (born 1995), and I can tell you that this is not the future of shopping. Sure, social commerce is a big thing, but Revolve built its platform on influencer culture. That influencer culture is slowly dying, partly because Instagram is taking away their power by removing followers and likes, and partly because consumers started to realize just how fake it was.
As influencer culture continues to die over the next several years, Revolve will become more like an online version of American Eagle Outfitters (NYSE:AEO). That’s a decent business. But, it’s not worth today’s valuation. I have a feeling insiders know this, and so I expect the lockup expiration to come with a wave of selling.
Source: designs by Jack / Shutterstock.com
Lockup Expiration Date: Dec. 11
Last, but not least, on this list of IPO stocks with lockup expiration dates just around the corner is online pet store giant Chewy (NASDAQ:CHWY). Chewy’s lockup expiration date? Dec. 11, when roughly 83% of the outstanding shares become unlocked.
Bad news for CHWY stock? Maybe. The stock had a great first day of trading. But it has been nothing but down, down, and down for shares since then. This lack of public market strength since the IPO pop may create a sense of doubt among insiders, and that doubt could form the basis for waves of selling on Dec. 11.
At the same time, though, Wall Street has remained bullish on CHWY stock during the plunge. Pretty much every analyst who covers the stock has a Buy rating on it, and the consensus price target is above $35, according to YCharts, versus a price tag today of below $27. This show of confidence from Wall Street could ease insider doubts, and mute the selling.
The big takeaway? CHWY stock should do just fine when its lockup period ends. There will be some selling, but not much, as broad support from Wall Street will keep overall sentiment bullish despite recent share price declines.
As of this writing, Luke Lango was long PINS, BYND, and LK.
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