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Facebook Rises as Lockup Lifts on Shares

Nov. 14 (Bloomberg) - -Scott Kessler, S&P Capital IQ head of technology equity research, discusses the impact of the flood of Facebook shares coming to market as another lockup period ends today and Google's government requests to remove content. He speaks on Bloomberg Television's "Bloomberg Surveillance."

Facebook Inc. (FB) had its second-largest gain since going public as investors -- undeterred by a surge in the number of tradeable shares today -- bet on the company’s potential to boost advertising revenue.

The stock advanced 13 percent to $22.36 at the close in New York. It rose by more only once before, on Oct. 24. Restrictions lifted today on 804 million shares held by former employees and those who sold at the initial public offering, almost doubling the total publicly available, according to a regulatory filing.

Facebook, operator of the world’s largest social-networking service, had lost about half its value before today as the number of shares rose and investors fretted about the company’s ability to generate ad revenue on mobile devices. Facebook eased concerns with its most recent earnings report, helping to drive up the price of shares released for trading today, said Brian Wieser, an analyst at Pivotal Research Group.

“There were a lot of institutional investors just waiting to get over this procedural hump,” Wieser said in an interview today. “Given that the earnings were good and that there’s better than likely chance of favorable performance in the future, anyone shorting the stock is at much higher risk.”

Photographer: Scott Eells/Bloomberg

Pedestrians are reflected in a window near a display of the share price for Facebook Inc., displayed at the Nasdaq MarketSite in New York, on May 29, 2012. Close

Pedestrians are reflected in a window near a display of the share price for Facebook... Read More

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Photographer: Scott Eells/Bloomberg

Pedestrians are reflected in a window near a display of the share price for Facebook Inc., displayed at the Nasdaq MarketSite in New York, on May 29, 2012.

The bans on sales are put in place to prevent shares from flooding the market immediately after an initial public offering. Restrictions lifted on smaller numbers of shares in August and October.

Today’s trading volume, more than four times the average level, is being driven in part by short-sellers getting out of the stock, said Victor Anthony, an analyst at Topeka Capital Markets Inc. in New York.

More Rounds

“Some of the investors are thinking the worst is behind Facebook and now is maybe the time to go long on the stock,” Anthony said.

Two more rounds of lockup expirations remain through May. Facebook, based in Menlo Park, California, will free up about 156 million shares in December for stockholders, except Chief Executive Officer Mark Zuckerberg, who sold in the IPO. The company will free up another 47.3 million shares May 18. This lot includes stock held by Russia’s DST Global Ltd.

Shares held by Zuckerberg aren’t part of the tally because he has said he won’t sell before September of next year.

Ashley Zandy, a spokeswoman for Facebook, declined to comment.

Andreessen Horowitz, an investor, distributed about 1.6 million shares of Facebook to its limited partners, filings today showed. The holdings came from the firm’s investment in Instagram, which Facebook acquired earlier this year, changing the ownership of the shares, according to Margit Wennmachers, a partner at Andreessen Horowitz.

Mobile Ads

Andreessen Horowitz still holds the more than 3.5 million shares from its direct investment in Facebook because “we believe in the long-term potential” of the social network, she said.

Bloomberg LP, the parent company of Bloomberg News, is an investor in Andreessen Horowitz.

Facebook, which makes most of its money from advertising, reported sales rose 32 percent to $1.26 billion in the third quarter, matching the growth of the second quarter. That’s a slowdown from 45 percent growth in the first quarter and 55 percent in the fourth quarter.

Still, third-quarter revenue topped estimates of $1.23 billion as Facebook benefited from efforts to sell advertising on mobile devices, where users are increasingly accessing the service. The results from new ad services show promise, improving the company’s growth prospects, said Colin Sebastian, an analyst at Robert W. Baird & Co.

“We recommend investors take a longer-term view than just near-term lockup issues,” Sebastian said. “We look at the fundamentals and see Facebook as becoming a legitimate ad platform over time.”

To contact the reporters on this story: Brian Womack in San Francisco at bwomack1@bloomberg.net; Ryan Faughnder in New York at rfaughnder@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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