Twitter (TWTR) has been in near-free fall since early February, with Twitter stock diving by nearly 30% in just a couple of months.
True, part of the hit can be chalked up to the impact of a bear move in the broader social sector — see Facebook (FB), Angie’s List (ANGI) and Pandora (P). But there’s another factor that TWTR stock investors should be worried about: the IPO lock-up expiration.
Lock-ups and their expirations — in which insiders are allowed to sell shares — are normal occurrences for all IPOs. Insiders typically are restricted from selling for up to six months following the offering.
But the Twitter stock lock-up had an unusual two-part structure:
- Feb. 15: TWTR allowed 9.9 million shares to be sold, or an addition 14% of the original number of shares issued in the IPO (70 million).
- May 6: TWTR will allow a whopping 465 million shares to be sold. And considering what happened after the first one — Twitter stock is down 18% since Feb. 15 — this is something investors should be worried about.
Investors must note that lockups are particularly concerning for hot tech companies, as a big portion of employee compensation tends to come in the form of stock. Considering TWTR is trading at nose-bleed valuations of 39 time sales, and that even after this year’s big losses, shares are up 80% from their IPO price, it’ll be awfully tempting for employees to dump shares. (After all, it’s not cheap to live in San Francisco!)
Still, given the short-term pain, it’s wise for both those looking to sell current positions and those looking to buy in to know what’s coming up. So, here’s a look at some other stocks to put on your lockup radar screen:
- April 14: Veeva Systems (VEEV): Operates a cloud-based system for the pharma and biotech industries.
- April 16: Voxeljet (VJET): Develops high-end 3d printers for companies like Daimler (DDAIF), BMW (BAMXY), Ford (F) and 3M (MMM).
- April 28: Criteo (CRTO): Runs an algorithmic ad network that spans the desktop and mobile platforms.
- May 5: Wix (WIX): Provides web hosting for small businesses.
- May 14: Zulily (ZU): Operates an e-commerce site for children’s apparel and other products for moms.
- May 15: 500.com (WBAI): Manages online sports lotteries in China.
Again, don’t assume all these stocks will fall. In fact, the lockup expiration might have little to no impact for IPOs that have declined since their debuts (VEEV, for example).
Instead, you’ll want to focus on stocks that have had big-time gains. WBAI, ZU and even VJET — which is down since its first day of trading — all still trade for at least double their IPO prices, so insiders will definitely be thinking hard about collecting. That makes these stocks vulnerable during the next few months.
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.