Facebook Inc (FB) Shares Jump, Even As 804M Shares Hit The Market

Today 804 million Facebook Inc (NASDAQ:FB) became available for sale in the public market, and everyone was expecting the prices to decline further, at least a little. But due to the surprise of Wall Street (but not ‘ultra’ contrarians), the the stock jumped more than 10 percent to $21.85. Facebook shares are still rising even as more company insiders become able to unload their holdings.

Facebook Inc (FB) Shares Jump, Even As 804M Shares Hit The Market

According to Sterne Agee analyst Arvind Bhatia, investors are holding onto their stocks because they feel more comfortable about Facebook’s business. They are now more confident about the company’s mobile push and recently launched advertising methods such as Sponsored Stories. Additionally, Mr. Bhatia thinks that many insiders are waiting for the stock prices to go up before offloading their stakes.

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During the previous lock up expirations, investors had doubts about the company’s fundamentals. That’s why they were aggressively offloading their holdings. But Facebook Inc (NASDAQ:FB)’s strong third quarter performance and successful transition to mobile have made investors feel better about the fundamentals. When the first installment of shares was unlocked in mid-August, prices plunged more than 6 percent. During the second lockup expiration in late October, stocks further dropped 3 percent. But this time, it’s a completely different scenario.

Trading is far too heavy today. In the first 20 minutes of trading, more than 55 million shares exchanged hands. That is much higher than 52 million shares traded daily on an average in the past 30 days. The unexpected jump in prices during the third and largest unlocking of shares has broken the string of large stock losses following such events. Analysts estimated that a rise was highly unlikely.

In the third quarter, Facebook Inc (NASDAQ:FB) sales jumped 32 percent to $1.26 billion. Cantor Fitzgerald, an equity research firm, maintains a buy rating with a price target of $28. Cantor analyst Youssef Squali said that patient investors should take advantage of the market dislocation that is likely to ensue between now and the year-end to accumulate the stock. Squali provides more details regarding the lockup, he notes:

Options to purchase 48.3M B shares also become available for sale today. Per Facebook’s latest 10Q filing, options to purchase 48.3M Class B common shares held by former employees (outstanding and fully vested) will be eligible for sale today as well.

Lock-up includes ex-employees and institutions that did not sell at IPO. He believes that the sellers will skew more to ex-employees, but also include a few institutions that did not participate in the IPO; those could potentially include T. Rowe Price (~18M shares) and Valiant Capital Opportunities (~36M shares.) The last lock-up expiration for officers and directors took place on 10/29, and was for 229M shares.

Even if some insiders are willing to sell, they are waiting for the prices to go up.