Facebook Rises as Ad Growth Eases Lockup Expiration Fears

Facebook Inc. (FB) rose to the highest price in almost four months, buoyed as investors’ confidence in revenue-growth prospects overcame a surge in the number of tradable shares.

The stock climbed 5.3 percent to $24.32 at the close in New York, the highest since July 26. The stock has gained 22 percent since Nov. 13, the last trading day before the most recent lockup expiration.

Restrictions lifted Nov. 14 on 804 million shares held by former employees and those who sold at the IPO, almost doubling the total publicly available. Since that lockup expiration, investors have stuck with Facebook because the world’s largest social network showed an ability to boost advertising in its most recent earnings report, said Michael Pachter, an analyst at Wedbush Securities Inc.

“It took us getting through these lockups without seeing a giant crush of shares show up with no demand,” Pachter said. “It’s pretty clear that the people who were eligible to sell last week are doing so in a disciplined manner. Each day that passes post-lockup there’s a new investor showing up who says, ‘OK I’m no longer scared by that.’”

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.

Future Expirations

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 on the stock movement.

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 in prior three month. Revenue topped estimates of $1.23 billion as Facebook benefited from efforts to sell advertising on mobile devices.

The company, which didn’t start its mobile-ad service until March of this year, said ads delivered to people on mobile devices generated about $150 million during the quarter, or 14 percent of all advertising revenue.

Governance Changes

Separately today, Facebook said the company is proposing changes on how users can address updates with the site’s governance policies. Until now, Facebook has enabled members to vote on changes where users show enough interest. Now, it’s looking to end potential votes while introducing new ways to inform members on changes while continuing to seek their feedback.

“We found that the voting mechanism, which is triggered by a specific number of comments, actually resulted in a system that incentivized the quantity of comments over their quality,” Elliot Schrage, vice president, communications, public policy and marketing, wrote in a blog post today. “Therefore, we’re proposing to end the voting component of the process in favor of a system that leads to more meaningful feedback and engagement.”

To contact the reporter on this story: Brian Womack in San Francisco at bwomack1@bloomberg.net

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

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