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Facebook, Selling at Half Off Wall Street's MSRP, Has Its First Lock-Up Expiration Coming Very Soon


Are Facebook's lock-up expirations the next phase of the death spiral, or is that way too obvious?

MINYANVILLE ORIGINAL Facebook (FB) is treading dangerously close to $19 -- a full 50% off the $38 price at which Wall Street priced 2012's biggest IPO.

There appears to be two pieces of news driving the action today.

The first comes courtesy of our upstairs neighbor Henry Blodget, who pointed out that news providers like Yahoo Finance (YHOO) and Google Finance (GOOG) are drastically understating Facebook's market cap. This is because they are undercounting Facebook's diluted share count. As of the time I'm writing this, Google and Yahoo are both using a 1.9 billion share count, multiplying it by a stock price of about $20.25, and coming up with $38 billion.

Meanwhile, according to Facebook itself, the correct diluted share count is 2.74 billion. At $20.25, that equals $56 billion.

But this isn't a big deal.

It is not uncommon for market caps to be miscalculated for new issues, especially when the underlying company has multiple share classes. This is because financial databases aren't always perfectly scrubbed, and in some cases, the data collection process is automated. Even the Bloomberg Terminal has its own number -- $49.2 billion!

Furthermore, professional investors, including the sell-side analysts whose estimates make up consensus numbers, tend to use correct share-count numbers.

So while folks unschooled in these nuances may be thrown off by the market-cap numbers posted on some finance websites, I doubt it matters. Most investors look at P/E ratios when valuing stocks -- not metrics like EV/Sales and EV/EBITDA. And on an earnings basis, Facebook's been an obvious rip-off from the start.

On thing I will point out is that full-year earnings estimates on Facebook are actually coming down. Heading into the quarter, Wall Street was expecting $0.51 per share. Now that number is down to $0.49. Declining earnings estimates are usually a negative indicator for momentum stocks.

So yes, Mr. Blodget pointed out an interesting wrinkle in the Facebook saga (one that I hope data providers pay attention to), but I don't think it matters all that much.

But what does matter is what's coming up on August 15: Facebook's first IPO lock-up expiration, where insiders will start selling their stakes for the first time since the IPO.

I touched on this yesterday on Minyanville's Buzz & Banter (click here for a 14-Day FREE trial, ON ME!) as I've been going back and forth on whether I should be betting against Facebook ahead of the lock-up.

Everyone knows that the expiration is coming; therefore, it's probably priced in.

But if everyone thinks it's priced in, it's probably not.

So round and round I go, playing reverse psychology with myself.

Meanwhile, had I put on the trade I'd been eyeballing yesterday morning -- buying the August $21/$20 put spread -- I'd already be planning my celebratory dinner at Sizzler.

But either way, I wanted to post the schedule of expirations Facebook reports in its S-1 because my gut tells me the lock-ups are going to weigh on the stock.

As of now, 462 million shares are in the float, according to Bloomberg.

On August 15, 268 million shares will come on the market.

Between October 14 and November 12, another 247 million shares will be on the the way.

On November 13, 1.349 billion shares hit. On December 13, an additional 123 million shares hit.

And finally, on May 13, 2013, another 47 million shares will be added.

So that's a total of two billion shares -- over four times the current float -- coming onto the market within a year -- unless, of course, Facebook insiders decide to exercise and hold.

What are the chances of that?

For now, I'm fixated on the 268 million shares that hit in two weeks. Will there be enough buyers to satisfy the new supply?

I've got some hard thinking to do...

Twitter: @MichaelComeau

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No positions in stocks mentioned.
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