When the lockup period for nearly 800 million shares of Facebook (Nasdaq: FB) ended, shares did not fall, as many predicted. Looking at other social media companies that faced lock-up expiries, investors should note the major rallies for Zynga and Yelp. Zynga rallied significantly earlier in 2012 even after insider share sales and stock issuances. Conversely, Yelp shares held strong despite lock-ups ending:
Facebook rose because insiders did not all sell at once, on November 14. On the same day, the company announced a job app, along with other revenue-generating ideas. Shares in LinkedIn (NYSE: LNKD) hardly moved that day. An online retailing and travel site tool was also launched, along with announcements for new partners for its gifts e-commerce initiative.
Trading Environment Matters
Most of the existing share float represents retail accounts that bought Facebook when it IPOed at $38.
Friday, November 16 was the day options expired, so a rise in Facebook shares benefited many options holders.
Analysis
Facebook is unlikely to dislodge the business users from LinkedIn. Facebook's job app works by displaying jobs from Monster and other sites. Investors should recognize that these ideas do generate revenue, but unless they evolve and innovate in a positive way for its users, profits will be light.
The value Facebook Gifts will take time to assess. Gifts, which, lets users buy gift cards and other gifts for their friends, right from their timeline on mobile or desktop, is not yet a proven retail model.
Other developments
The Facebook app is being updated for Apple's iOS and Android app. Users may now share content, while crediting the original sharer in the status update.
Final thoughts
Facebook is widely followed by Kapitall users. Users will need to decide if the rally is sustainable, or if Facebook's valuation will continue to decline. Froth left the market, but the high valuation in Facebook will need to be supported by above-average revenue and growth.
(Click here to access free, interactive tools to analyze these ideas.)
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
Kapitall's Chris Lau does not own any of the shares mentioned above.
