Despite a rocky start, Facebook (FB) said it will emit “millions more” shares to still wary investors, as in just a few months select insiders and early investors will be free to sell their shares once what is known as “the lock-up period” expires.
But, wouldn’t a flood of available stock further reduce Facebook's stock price? Stephen Diamond, professor of law at Santa Clara University, surely thinks so. "This is a big issue hanging over the price of the stock," he said. “Facebook's stock price still has a way to go on the downside as the market takes account of increased supply, " he added.
Investors, who are already weary due to FB’s less-than-stellar performance so far, are nervously awaiting the expiration of the lock-up period because historically even strong IPO’s suffer declines as the market doesn’t receive well the news of executives and early investors trying to get rid of stock.
However, it’s possible that more shares could be issued to pay for more acquisitions. Facebook announced its $1 billion Instagram acquisition right before the IPO, which was received as a positive development as suggested the young company was financially might. Nonetheless, this also has a potential downside as investors could see acquisitions as events that further dilute their stakes in the company.
Will Facebook accelerate its downward spiral with the release of millions of more shares? Hopefully not, because given the size and scope of its battered IPO a failing could be fatal not only for the social network but for the technology sector at large prompting the feared and anticipated Tech Bubble 2.0.