Long before going public, Facebook was operating on venture capital and an investment from Microsoft. Starting Thursday, those early investors can start selling their 268 million shares, or what amounts to about 10 percent of the company. A similar amount will be released in October. In November, a whopping 332 billion shares, or 49 percent, will be released. Smaller blocks will be unlocked in December and next May.
David Lucas at San Jose's Raymond James Financial doesn't think the early investors will bail out, "I don't know that they'll be that impatient about getting out. When the employees get their opportunity later this year, it may be a little bit more of a sense of urgency."
Facebook is about $17 below its IPO price of $38. The more likely sellers might be employees, whose shares can be traded starting in November. Lucas says they may want cash to leave the social networking giant and start companies of their own, "They may have designs on their own company, so they may lose some talent. It's possible. And they have structured annual incentives to stay. That's going to be a challenge for management. They've already lost some top executives, as you know."
The company also faces a tax liability of nearly three billion to cover stock options for employees. That's money it could use to help develop its advertising strategy for mobile devices, its biggest challenge.
If shares are sold, the Silicon Valley real estate market is expected to benefit, as newly minted millionaires look for homes. However, Barbara Lymberis, president of the Santa Clara County Association of Realtors, thinks the IPO beneficiaries learned something from the dot-com bust, "They know that they need to save for the future. They will have families. They will have children to put through college. College costs are going up. They want to focus on the things that will matter as opposed to the things that matter right now."
The big unknown is how Facebook's stock price will be impacted by early investors cashing out.