Shares of social network Facebook (NASDAQ: FB) jumped today as 800 million shares were unlocked by early investors and employees, creating the biggest increase in stock available to the public since the company's disasterous public offering in May.
Facebook stock closed up over 12 percent at the end of trading in New York to $22.36 after its third lockup period expired. Under federal rules, certain insider shareholders are prohibited from selling in the months after a new share issue.
"Clearly there has been a lot of anticipation about today's lockup expiration and what that may mean for the shares," said Rick Summer, an analyst with investment firm Morningstar.
Shares of the social media giant have recovered somewhat after falling drastically from Facebook's initial public offering price of $38.
The conventional wisdom is that a large increase in the number of unlocked shares would put downward pressure on the stock price.
Summer said that may have led to a somewhat self-fulfilling prophesy as investors sat on the sidelines waiting to purchase stock. Some investors may also be waiting for greater gains or to recoup losses from their purchase price.
"Certainly there was a delay and pent up demand in shares," he said.
However, Summer said he is encouraging clients to focus on fundamentals of the company and what their shares are worth.
For Morningstar, that is a $32 a share in fair value, so Summer calls the current price "attractive."
In October, Facebook reported better than expected third-quarter results, such as growth in ad revenue and a "meaningful" mobile advertising business that should generate more than $1 billion over the next four quarters, expects Morningstar. Ad revenue grew 36 percent from 2011 mostly from new advertising products.
The company said its News Feed advertising product is generating about $4 million in revenue per day, with 75 percent that from mobile ads.
Nevertheless, the company reported a loss of $59 million in the third quarter, compared with profit of $227 million a year ago in the same quarter.
Risks to Facebook's profitability remain, Morningstar states. Those include regulations that could prevent the company from tracking users, detracting from the value of its advertising platform, and a potential exodus of users turned off by excessive advertising and privacy fears.