Facebook: The first flood of shares will be unlocked August 16

How does the concept of 1.9bn un-locked Facebook shares make you feel? Well, depending on your temper, between uncomfortable and scared! The Facebook (NASDAQ:FB) IPO May 17th put 421m shares into the open market, but there are 1.9bn more shares owned by Facebook early investors, employees and directors.  That's 5 times as much as we saw in May, and all these shares are potentially for sale as their owners want to cash in.

The timeline
What is the timeline for who can sell and when? Below in the table you can see all the dates and amounts, which potentially can put pressure on the stock price.  The description of each of the lock-ups is taken from the IPO prospectus.

All in all it adds up, as you can see from the chart below. One of the issues investors have to keep in mind is that the unlocking will continue the rest of the year for the bigger part of the shares. So when the market has absorbed one chunk, another is around the corner and this can wear out the stamina of any investor group.

What are the risks and potential?
The risk is that the current holders of the stocks are a limited number of people. Even at USD21 they have made a lot of money, but they also know that selling as quickly as possible might be a good idea, as the price will probably move lower. This thinking will probably compress the sale to one or a few days after the expiry of the locked period.

But the world is never simple and investing is neither. Investors know the shares are coming – well I am writing about it here, right?  So the share price might drift lower in the period up to the dates and so investors have “room” to take on the load.

Follow Facebook closely in the period up to August 16th where the first load potentially comes and decide if this is the time to cover your short or just get into the stock. Timing is always important but even more so in Facebook over the next 4 months, as the load in August is only the first headwind.

The upside in all this is if you feel you are compensated sufficiently and the market is able to cope with the extra shares, then Facebook could have room to perform after this steep headwind.

See other of my Facebook articles:

1. Questions you should ask before investing in Facebook
2. What is Facebook really worth
3. Hey Facebook we need more disclosure.
4. Facebook increasing user numbers..
5. Facebook IPO - Valuation pushed to the extreme
6. Facebook - even USD25 seems a stretch...
7. Apple - iOS6 and the implications for Google, Facebook...
8. Facebook - Relief rally but did the big picture really change
9. Facebook analysts agree on price disagree on revenue, net income.