Facebook plumbs new lows as sales curbs expire

The company founded by Mark Zuckerberg in his Harvard dorm room became the only U.S. company to debut with a market value of more than $100 billion.

But investors have since grown disillusioned with Facebook’s inability to articulate a plan to reverse slowing revenue growth – due in large part to its limited mobile advertising efforts – sending the stock down almost 50 per cent from its $38 debut.

Many investors remain unnerved by the massive flood of shares still waiting to be released: More than 1.4 billion additional shares will be eligible for selling by year’s end,nearly tripling the amount available for trade.

Analysts say Thursday’s frenetic trading offers a taste of what may transpire in November,when many of the social network’s employees get to cash in stock awards for the first time.

With Thursday’s selloff,Facebook has lost almost $50 billion,or just under half,of its value since its IPO. The stock,which debuted at $38,fell as much as 7.1 percent to a all-time low of $19.69 before ending the day at $19.87.

Among the largest blocks of shares now available for trading are about 75 million owned by Russia’s DST Global Limited and Mail.ru. Other potential sellers may have included venture capital firm Accel Partners and PayPal co-founder Peter Thiel.

With Facebook trading at just under $20,Zuckerberg,28,who enjoys majority voting power,has now watched more than $9 billion evaporate from his net worth. Zuckerberg was ranked 35th on the latest Forbes’ list of the world’s richest billionaires published in September 2011.

You’ve had a failed IPO,the stock has been cut in half,a sloppy quarter and a big lock-up expiring. Every one of those tends to erode faith,said Michael Binger,a portfolio manager at Gradient Investments,whose firm does not have a position in Facebook.

With Facebook still trading at 40 times its expected 2012 earnings – compared to 16 for Google and 14 for Apple Inc – Binger said he did not see a buying opportunity until the company’s revenue growth starts to re-accelerate.

Another 243 million shares will be released from lock-up between mid-October and mid-November. On Nov. 14,more than 1.2 billion shares will be available for trading. Zuckerberg will not be able to sell his shares until then.

The biggest issue is not this lock-up; it’s the November lock-up,said Pivotal Research Group analyst Brian Wieser.

If the company’s perceived operating momentum doesn’t improve by then,he said,then there’s real trouble ahead.

The cost of shorting Facebook shares has fallen sharply since their debut in May,because the stock is now easily available to borrow. As of Thursday,the cost of borrowing the Facebook shares was about 1.6 percent per annum on an annualized basis,compared to 40-50 percent when the stock made its debut in May.

On Thursday morning,600,000 shares were shorted,due in part to the relatively inexpensive rate at which short sellers must pay to sell short, said Tim Smith,executive vice president of Sungard’s Astec unit.

Short interest figures calculated by the Nasdaq Stock Market,released on a lagging basis twice a month,shows 61.3 million shares were shorted as of the end of July. New figures on short interest will not be released until August 24.