The 2 Reasons Facebook Share Are Down Today

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

Stocks are giving back some of yesterday's unexpected taper lift this morning, with the S&P 500 and the narrower Dow Jones Industrial Average (DJINDICES: ^DJI  ) down 0.41% and 0.22%, respectively, at 10:20 a.m. EST.

There are always some people who want to spoil a party. In the case of Facebook (NASDAQ: FB  ) , today's culprits are a federal judge and the company's CEO, Mark Zuckerberg. Shares of the social networking company are set to be added to the S&P 500 after the close of trading on Friday, crowning their return from ignominy after a May 2012 initial public offering that was a public relations fiasco. As of yesterday's close, the stock has more than doubled year to date, with an 18% gain this month alone. Today, however, the ghosts of that IPO have come back to haunt the shares, which were down 1.51% at 10:20 a.m. EST.

In a decision that was released publicly yesterday, U.S. District Judge Robert Sweet ruled that investors can pursue claims against Facebook for not having disclosed prior to its IPO internal projections regarding the revenue impact of the rise of mobile usage. This was one of the issues that mired the flotation in controversy, particularly as it emerged that the company had shared the data with its underwriters' stock analysts.

The fear that the transition to mobile would harm Facebook's advertising franchise continued to dog the stock this year until results for the second and third quarters reassured investors that this was not occurring -- note that all of the stock's gains in 2013 have come in the second half of the year:

FB Chart

FB data by YCharts.

The second news item that is hurting shares today is the disclosure that Facebook is planning a stock sale in which Zuckerberg will sell 41.4 million shares worth $2.3 billion. That represents just less than 9.7% of his current ownership stake, according to data from S&P Capital IQ. With 17.3% of the company's shares outstanding, Zuckerberg is Facebook's largest shareholder by a wide margin.

Facebook said it expects Zuckerberg to use most of the proceeds from the sale to satisfy taxes related to the exercise of an option to buy 60 million Class B shares (Class B shares are convertible into Class A shares at any time, but they have 10 times the voting rights). Nevertheless, shareholders ought to ponder the timing of the sale, which suggests that company insiders believe the stock is at least fully valued. With a market value of $136 billion and trading at 53 times next 12 months' earnings-per-share estimate -- the sort of numbers reminiscent of large-cap blue chips at the beginning of 2000 -- that's not hard to imagine.

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