This time of year, many investors sell stock for tax purposes. And it looks like Facebook’s (FB) Mark Zuckerberg is doing the same thing. He plans to unload 41.4 million shares of FB stock, netting about $2.3 billion. To pull this off, Zuck will get the help of Morgan Stanley (MS), JP Morgan (JPM) and Goldman Sachs (GS). And on the news of the transaction, FB stock is off by about 1.75% to $54.61 in early trading. Yet on a year-to-date basis, the gain is still a huge 105%.
Keep in mind that secondary offerings of stock are fairly normal. It’s a more efficient way to provide liquidity for executives and venture capitalists. So the deal should not necessarily be a red flag for FB stock. After all, other social companies like LinkedIn (LNKD) and Yelp (YELP) have continued to realize nice gains after secondary offerings.
Instead, the time to worry is when the insiders are unloading huge holdings, which certainly isn’t the case with Zuckerberg and his FB stock. After the sale, he will still own a whopping 444 million shares of FB stock and have about 56.1% voting control. So it’s a good bet he’ll continue to focus his efforts on Facebook for the long haul.
The Real Issue for FB Stock
Instead, the real issue for FB stock is the underlying fundamentals. While Zuckerberg has pulled off a the move to mobile, there are still some nagging problems. For example, Facebook has had a bad losing streak with new products. Some of the duds include Graph Search, Poke (which was a knock-off of SnapChat) and Home (a launcher for Android). For the most part, FB remains mostly about its newsfeeds and timelines. But to find growth and fuel FB stock, the company will need to get back its creative spark.
Next, FB stock must deal with some tough competitors, especially from the mobile chat operators like WhatsApp, Line and SnapChat. The fact that Zuckerberg offered $3 billion for SnapChat — which has zero revenues — is a sign that he’s getting worried.
In other words, the secondary offering looks mostly like a non-event. The real problem is that FB can’t seem to create cool products anymore — which will likely weigh on FB stock over time.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
