Facebook falls after 220m shares freed up for trading

Facebook (Getty Images)

Facebook declined the most in more than five weeks on concern that employees will start selling their shares now that prohibitions on insider sales have ended.

Shares of Facebook had touched $20.73 for the biggest intraday decrease since Sept. 24. They declined 3.8 percent to $21.11 at the close in New York, the first trading session since restrictions on the potential sale of 229 million additional shares lifted on Monday. Trading shut down for two days this week because of Hurricane Sandy.

The lockup was designed to prevent a flood of shares immediately after the company's initial public offering in May. Current and former Facebook employees, whose shares were made available for trading Wednesday, have seen the value of their equity compensation decline as the stock fell 42 percent through Monday. Some employees are eager to realize gains, said Michael Pachter, an analyst at Wedbush Securities.

"The bulk of their compensation is stock, and probably a whole lot of them are living way above what their salary will justify," Pachter said in an interview. "The day that it unlocks, you're just asking people to sell."

Shares of Menlo Park, Calif.-based Facebook made available for trading are held by current and former employees, according to a regulatory filing. The lockup will expire for an additional 960 million shares by the end of the year, followed by 47.3 million more in May 2013.

Zuckerberg's cache of 444 million shares and options for 60 million more is excluded from the tally because he has said he won't sell before September 2013, according to the filing.

The first lockup on Facebook stock expired Aug. 16, freeing up 271.1 million shares held by early investors including DST Global, Goldman Sachs, Elevation Partners and Accel Partners.

Facebook reported last week that third-quarter sales rose 32 percent, beating analysts' predictions, as the company began to benefit from efforts to sell adds targeted at the growing number of users who access the service via mobile devices. The growth matched the second quarter's pace, snapping a streak of slowing increases.

The company's market value has plummeted since it held the largest Internet IPO on record as investors fretted that it wouldn't quickly ramp up mobile-related sales.

Facebook's mobile growth prospects are promising as users show more engagement on wireless devices than on desktop computers, CEO Zuckerberg said on an earnings-related call. The company may eventually make money more easily from mobile ads than those on desktops, he said.

"Our opportunity on mobile is the most misunderstood aspect of Facebook today," Zuckerberg said. "Most people underestimate how fundamentally good the trend toward mobile can be for Facebook."

About 60 percent of Facebook's more than 1 billion members are accessing the service on mobile, compared with about 47 percent a year earlier, with some skipping the desktop altogether. About 126 million monthly active users accessed Facebook solely through wireless devices during the month of September, up 24 percent from June, according to a regulatory filing.