Well, it took the loss of about $50 billion in market share, but Facebook’s (NASDAQ:FB) stock finally is getting some attention from CEO Mark Zuckerberg.
In a seeming attempt to pacify rapidly exiting shareholders, Zuckerberg said Tuesday he will not sell any of his stake for at least a year; he currently owns 444 million shares of Class B stock, and also has options to purchase as many as 60 million shares of Class B stock.
Other key directors, which include Marc Andreessen and Donald Graham, will only sell shares to meet any of their tax obligations. This is in stark contrast to board member Peter Thiel, who sold much of his stake for about $1 billion.
Facebook also will move up the lockup expiration for employees from Nov. 14 to Oct. 29, making 234 million shares available for sale. However, Facebook essentially will spend about $1.9 billion to keep 101 million shares off the market — resulting in outstanding shares shrinking from 2.7 billion to 2.6 billion.
The irony? A buyback like this traditionally is the tool of older tech companies, especially when they’re seeing slower growth, as a way to artificially boost earnings per share.
While this might provide some boost in the short run, it still does not solve the core problem at Facebook: The company must effectively deal with technology’s rapid transition to mobile. The challenge has been with monetization; there is less room for ads on smartphones and tablet screens than traditional PC screens, and numerous Internet companies (including Facebook) are scrambling to figure out this early-stage market.
In the meantime, about 1 billion shares still will be available for sale because of lockup expirations as of the end of November. And it seems inevitable that insiders will want to take money off the table to diversify their holdings, as well as to make larger purchases such as homes and autos.
Wall Street is at least immediately optimistic about the deal, with shares up about 5% in Wednesday trading. But the valuation of Facebook’s shares remains high, trading at 65 times earnings — meanwhile, larger but still growthy Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG) boast respective P/Es of 15 and 20.
In other words, despite the near-term optimism, long-term investors shouldn’t feel compelled to rush into Facebook’s stock yet.
Tom Taulli runs the InvestorPlace blog IPOPlaybook, a site dedicated to the hottest news and rumors about initial public offerings. He also is the author of “All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli. As of this writing, he did not own a position in any of the aforementioned securities.
A long-time follower of the IPO scene, back in 1999 Tom started one of the first sites in the space called WebIPO. It was a place where investors got research as well as access to deals for the dot-com boom. Tom also wrote the top-selling book, Investing in IPOs. In it, he covers all the aspects of analyzing an IPO, such as reading the prospectus, detecting the risk factors and understanding some of the arcane regulations. But don’t worry — if that process is too intimidating for you, thankfully Tom will do the legwork for you right here in the IPO Playbook blog.
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