Box Inc. venture investors will be free to sell more than 40 million shares when a post-initial public offering lockup ends on Wednesday, which may lead to a decline in the stock of the cloud file-storage company.
The expiring lockup governs 105.8 million shares, according to company filings. While investors can sell, executives, employees and board members can’t until September because they are subject to additional insider-trading rules, said a person familiar with the matter. Those shares restricted from sale until September account for about 60 percent of the stock governed by the expiring lockup, said the person, who asked not to be identified because the details aren’t public.
Lockup agreements exist to keep a company’s share price stable in the months following an IPO by preventing employees and early investors from dumping the stock. Since its share sale in January, Box shares have climbed 25 percent, buoyed by partnerships with Microsoft Corp. and International Business Machines Corp. and new customers such as the U.S. Justice Department.
Venture capital firms Scale Venture Partners and Draper Fisher Jurvetson are among investors who have representatives on Box’s board and won’t be able to sell on Wednesday. Other investors, including private equity firm Meritech Capital Partners and hedge fund Coatue Management LLC, can sell.
“The upcoming lock-up expiration may be an overhang for the stock in the near-term as investors anticipate an increase in supply,” Melissa Gorham, an analyst at Morgan Stanley, wrote in a note.
Shareholders released from the lockup may choose not to sell. Ashley Mayer, a spokeswoman for Los Altos, California-based Box, declined to comment. Box shares fell 6.4 percent to $17.55 on Monday.
The company, whose tools let consumers and businesses save and share documents and other media via the Internet, has boosted revenue yet is still posting losses, and is seeking to curb spending on sales and marketing. Earlier this month, EMC Corp. sold control of a rival corporate file-sharing unit, partially because it was finding it difficult to chart a course toward profitability in that market.
DRD Investments LLC, a private wealth-management firm that tracks data on lockup expirations, has been recommending investors sell Box stock short -- a bet on a decline in the shares -- ahead of the lockup expiring. Short interest accounts for about 23 percent of Box’s float, according to data compiled by Bloomberg. Because the shares are trading above the IPO price and there seems to be some investor interest in them, those who were previously restricted may want to sell, said Katherine White, an analyst at the Naples, Florida-based firm.
“You may see some of the insiders want to take initial profit,” she said. “They worked really hard to get to IPO and this is their first chance to sell. Even if they don’t want to cash out completely they might want to sell a bit.”