MENLO PARK (CBS SF) – Shares of Facebook plunged to all-time lows after early investors and insiders were allowed to sell their shares Thursday, dimming California’s hope for a capital gains windfall that would help balance the state budget.
The stock fell 7 percent, or $1.49, to $19.71 in Thursday morning trading. If the stock hits $19, it will have lost half its value since Facebook went public in May.
KCBS’ Bob Butler Reports:
After Facebook’s initial public offering, California officials calculated more than $500 million in revenue would flow into state coffers once the so-called lock-up period ended.
Now few of the 271 million additional shares eligible for sale are likely to flood the market because Facebook stock now trades around $20, down dramatically from its $38 initial price, said Michael Yoshikami, CEO of Destination Wealth Management.
“While you will see some people selling stock, I don’t think you’ll see executives actually selling much stocks,” Yoshikami said.
Some 421 million shares have been circulating since the one of the most anticipated IPOs in history.
UC Berkeley economics professor Alan Auerbach said the unexpected drop in Facebook stock should serve as a lesson for state legislators struggling to close the deficit.
“It highlights a problem of California’s tax system that we rely so heavily on the very volatile revenues from capital gains and executive options and that sort of thing from very, very high income individuals,” Auerbach said.
“We will continue to have this kind of recurring problem until we have certain structural reforms in the way the government is organized and the way we raise money.”
Lock-up periods that prevent insiders from unloading shares too close to an IPO, generally start to expire 90 days after a stock IPO in order to prevent volatility should too many shareholders decide to sell at once.
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