Friday, August 17, 2012

Facebook Investors Cash Out

Facebook Inc.'s stock price plumbed a new low Thursday as early investors were freed to sell some of their stakes, leaving the once-prized stock down nearly 50% from its debut and forcing executives of the young Internet giant to pump up morale.

Facebook Chief Executive Mark Zuckerberg is no longer brushing off concern about his company's sinking stock price, acknowledging to employees for the first time that the selloff could hurt them.

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On its first day of trading in May, Facebook shares closed at $38.23.

Mr. Zuckerberg has long exhorted employees not to pay attention to the stock price, instead pushing them to focus on developing the social network. But in a companywide meeting earlier this month, he conceded that it may be "painful" to watch as investors continue to retreat from Facebook's stock, according to people familiar with the meeting.

The meeting was part of a new effort over recent weeks to buck up morale.

Mr. Zuckerberg's turnabout may have steeled employees ahead of Thursday, when some early Facebook investors?but not employees?were able to cash out for the first time since the company's initial public offering in May.

Facebook shares hit a new low on Thursday, falling 6.3% to $19.87 as more than 271 million shares?or nearly 13% of those outstanding?became eligible for sale.

Rules that restricted investors from selling their stakes immediately after Facebook's IPO expired only for those who sold stock in the offering. The select group includes venture-capital firms such as Accel Partners and Greylock Partners and Wall Street firms like Goldman Sachs Group Inc. and Tiger Global Management.

Employees who own Facebook shares are only able to watch at this point. Lockup expirations in October, November and December will allow Mr. Zuckerberg and other employees to sell more than 1.4 billion shares. The biggest lockup expiration, freeing more than one billion shares, is set for Nov. 14. The last lockup expires next May.

For many employees, however, selling shares later this year may not be a palatable option. Facebook's stock has so far fallen about 48% since the IPO, pushing its market capitalization down to about $42.6 billion. Including restricted stock units and stock options, Facebook's value is about $54 billion.

At Thursday's price, some of the mutual funds that invested in Facebook before its IPO are underwater, or showing paper losses. They include mutual-fund giant T. Rowe Price, which bought into Facebook in early 2011 for roughly $25 a share, according to regulatory filings.

Other pre-public investors are close to breaking even. Goldman Sachs, one of the IPO's underwriters, invested in December 2010, along with Russia's Digital Sky Technologies, at $20.85 a share, slightly higher than Thursday's price.

Earlier investments in Facebook remain highly profitable. Accel Partners invested $12.7 million in Facebook in 2005. It sold more than 57 million shares in Facebook's IPO, for proceeds of $2.2 billion, and after the IPO owned more than 143 million shares, valued at nearly $2.9 billion at Thursday's price.

The investors either declined to comment or couldn't be reached Thursday.

More than 156.5 million shares changed hands Thursday, more than four times the recent daily average.

At Facebook's Menlo Park, Calif., headquarters Thursday, some employees said they aren't concerned about the current losses since they believe in the vision of the company. "I'll take a short-term loss now," said one employee who owns Facebook stock that is worth less than when he received it.

Another employee said that while he hasn't heard anyone talking about the stock price at headquarters Thursday, "obviously it's not great though when most employees bought in at the higher prices."

But in recent weeks, employees who weren't initially focused on the stock price had started expressing concern. Senior management realized it was time to do something about morale, believing that the falling stock could begin to distract workers, according to a person familiar with the matter.

Earlier this month, Mr. Zuckerberg began a companywide meeting by saying he doesn't want to open meetings talking about the stock price, since volatility is to be expected, but he said he wanted to acknowledge that the stock's slump is "painful" for some employees, according to people familiar with the meeting.

Mr. Zuckerberg went on to tell employees that the press doesn't know the company's future plans, and if they did, they would have the same faith in Facebook's ability to fulfill its lofty stock-market valuation. He said that investments the company has made over the last six to 12 months will soon bear fruit, the people said.

During a question-and-answer session after Mr. Zuckerberg's speech, one employee asked the CEO if employees are now allowed to talk about the stock price, according to the person familiar with the meeting. Yes, said Mr. Zuckerberg. People should feel comfortable talking about it, he said, but the price shouldn't be the focus.

Mr. Zuckerberg's new show of sympathy toward shareholding employees was a marked change from his earlier disdain for stock-price talk.

On the day of the IPO, Mr. Zuckerberg posted a picture to his Facebook wall of a poster that said, "stay focused, keep shipping." The halls of Facebook offices across the country are now splattered with the saying and employees have repeated the mantra since.

Mr. Zuckerberg addressed his employees a few days later by saying jokingly, "So, you've heard we're firing David?" referring to Chief Financial Officer David Ebersman, as Mr. Ebersman sat a few feet away, according to people familiar with the meeting. He then said, "We're very proud of our deals team and we think they did a great job."

That tone began to change as Facebook's stock dropped toward $20 a share.

Facebook's vice president of partnerships, Dan Rose, earlier this month at the company meeting told employees he knows the company can't pretend that people won't worry about the stock price, according to these people.

Mr. Rose recounted a story about when he was at Amazon.com Inc. and the stock price tanked, these people said.

He said he had young children and was concerned about his ability to provide for them, but he asked himself, "Do we have the right people in place and is our mission worthwhile?"

Mr. Rose said he asked himself the same questions about Facebook and believes the answer to both questions is yes.

?Scott Thurm, Matt Jarzemsky and Alexandra Scaggs contributed to this article.

Write to Shayndi Raice at shayndi.raice@wsj.com

A version of this article appeared August 17, 2012, on page A1 in the U.S. edition of The Wall Street Journal, with the headline: Facebook Investors Cash Out.

Source: http://feeds.wsjonline.com/~r/wsj/xml/rss/3_7013/~3/yLkc2aUUI2o/SB10000872396390444375104577593711737087098.html

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