Lock-up expiration dates has been a lot in the news lately, particularly relating to tech stocks such as Facebook Inc (NASDAQ:FB), Zynga Inc (NASDAQ:ZNGA) and Yelp Inc (NYSE:YELP). It has been described as a ‘monster’ stalking the worth of these companies that usually takes the shape of a huge short position on the stock prior to the expiration date. Look at this Valuewalk article detailing the lock up expiries for Facebook Inc (NASDAQ:FB) and Zynga Inc (NASDAQ:ZNGA)
You would note that Facebook Inc (NASDAQ:FB) has a particularly large lock-up expiry stock overhang. This could be a major factor affecting the stock and its decline from the IPO price of $38 to currently $19.20. Yet should we let this factor blind us to potential upsides from other factors that could work as positives?
Interestingly, today Yelp Inc (NYSE:YELP) has done the impossible. The stock has actually put on almost 20 percent on a day when lock-ups expired for about 53 million shares. The stock is trading at $21.89, and at one stage ($22.89) was up above its IPO price of $22.01 a share.
So did Yelp vanquish the lock-up expiry monster? And could the same thing happen with Facebook down the line?
“Stay focused and keep shipping,” advises Facebook CEO Zuckerberg to his employees. Facebook Inc (NASDAQ:FB) has said little recently, including not providing guidance during its Q2 earnings report. Yet the company has gone about new ad programs and launched new features for the social network that include a revamped and beefed-up version of Facebook for the iPhone. They face a ‘monster’ of their own – a rapidly increasing mobile user base that does not generate ad revenues compared to other platforms. Yet, Zuckerberg has advised employees to understand that the world at large may not understand or know about the company’s plans, and urged them not to “obsess” over the fall in the stock price.
It does seem that the company is down to brass tacks and going about building its mobile business without too much of a public fuss.
Research by Topeka Capital Markets is also pointing to a bullish view of the stock. In their view, “mobile monetization should be a significant contributor to financials over the next two years” and believe that the market could absorb the supply of additional shares from lock-up expiry, “as the company executes.”
Topeka maintain a long –term bullish view of the stock and advise that the stock is attractively priced relative to growth and has the prospects of sustainable value creation. The current weakness in the stock should instead be viewed as an opportunity to accumulate Facebook.
