Arturo Detexas

Matt Krantz, USA TODAY
8:58PM EST November 13. 2012 - The day Facebook (FB) investors have been dreading since the company went public is here.
Wednesday is when 777 million more shares of the No. 1 social-networking company are unlocked and available for sale. The bulk of rank-and-file employees who put their financial lives on hold hoping to sell and lock in gains finally get their chance.
These will be added to the 1.3 billion shares of Facebook stock trading, of its 2.2 billion shares outstanding, that already are giving Wall Street a case of indigestion.
"For employees, there's a lot of wealth tied up in this company," says Daniel Bradley, professor of finance at the University of South Florida. "Employees might be worth a lot on paper, but there's not much in the bank account."
This looming opportunity for employees to sell has been unnerving Facebook investors since the company went public May 18. Lockup period expirations are customary with initial public offerings.
Employees, officers and early investors are typically required to wait several months before they can sell, preventing an avalanche of selling pressure to beat down a fledgling stock.
Even with lockups in place, additional selling pressure often hurts stocks. Stocks usually fall 2% after an IPO lockup is lifted, says Jay Ritter, professor of finance at the University of Florida.
But this is potentially even more significant for Facebook because of the:
• Poor track record of past lockups. This latest unlock of shares is the third since the company went public. After the first lockup expired in mid-August, shares fell 6% to set a new all-time low at the time of $19.87. When the lockup expired the second time in late October, shares fell again, by 3% that time.
• Massive size. This latest lockup releases far more shares than the two previous combined and is the biggest one scheduled for the stock. "Given the size, just from a pure economic standpoint, it should matter," Bradley says.
• Sentiment. Investors have already been sour on Facebook stock, and the additional supply doesn't inspire reason to buy. Shares are down nearly 50% from their IPO price at Tuesday's close of $19.86.
Despite the fears, though, the lockup is hardly a secret and large investors seem to be willing to buy Facebook at the $18.50 a share range, giving the stock some downward support, says Francis Gaskins of IPODesktop Premium.
Facebook's reaction will hinge on whether more or fewer employees than expected sell. Shares of online review site Yelp actually rose more than 20% in late August after a lockup because selling was smaller than anticipated, Bradley says. The same could happen at Facebook, while it's unlikely, Bradley says. "To a certain extent, (the reaction) is based on market anticipation," he says.