It might seem odd for one of the biggest turnarounds in tech this year to dump billions worth of stock on an upswing, but that’s exactly the higher-ups at Facebook Inc. (FB) did on Dec. 19. Shares dropped four percent on the move. But as investors have assessed the information, the company's shares quickly began climbing back.
Sell-Off and Re-absorption
The sell-off makes nearly 70 million shares available to the public, with the lion’s share (around 60 percent) coming from founder and CEO Mark Zuckerberg. The timing of the sell-off is quite interesting as Facebook is gearing up to become the newest addition to the S&P 500 while riding an all-time high valuation.
Todd Lowenstein, a portfolio manager with Highmark Capital, said as much, explaining that “It’s never a positive sign when insiders are dumping massive quantities of stock.” But there’s more to the stock dump than fear from inside the Facebook camp.
As the company joins the S&P, demand for shares is sure to increase, and as Lowenstein put it, “(the share dump) will be absorbed without much disruption.”
Sale Represents Just 6 Percent of Zuckerberg’s Stake
While nearly doubling in valuation on the year, Facebook is doing anything but staying still. The company is looking to seriously expand their targeted advertising, seeking to squeeze more revenue-per-user. The question, of course, is whether more intrusive advertising will drive away users. Time will tell on that question, but for the time being, the company's last two quarters of revenue beats suggests not.
On the surface, a sell-off would make it appear insiders are skittish about blowback. But the move is could be more practical: after all, with the massive gains in valuation come massive taxes for Zuckerberg.
However, that’s just one possibility. For their part, Facebook is staying mum. In explaining the stock sale, Facebook said only that “Our principal purpose for selling shares in this offering is to obtain additional capital.”
In the scheme of things, the share movement is small potatoes for Zuckerberg. The sales only drops Zuckerberg’s voting power from 58.8 percent to 56.1 percent, meaning he will still retain some 444 million shares.
After dipping four percent in early trading on Dec. 19, Facebook rebounded. By midday, Facebook was down 1.44 percent to hit $54.77 a share.
Facebook will offically join the S&P after trading concludes on Dec. 20, replacing Teradyne Inc. (TER) .
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