Facebook stock jumps on biggest lock-up expiration day

Facebook's stock jumped more than 7 per cent on Wednesday, despite expectations that it would fall because more than 850 million additional shares in the company are being freed up for sale.

The Mark Zuckerberg-led company went public in May at $38 in a much-hyped initial public offering (IPO) of stock that turned out to be a letdown for investors. Its stock price hasn't hit $38 since.

On Wednesday, shares of Facebook Inc were up $1.48, or 7.5 per cent, at $21.34. The day marked the expiration of Facebook's biggest lock-up period, which is a time following an IPO that prevents insiders from selling stock.

In all, 773 million shares became eligible for sale, along with 31 million restricted stock units. About 48 million shares held by former Facebook employees also became eligible for sale, bringing the total to 852 million.

These shares would be on top of what's already been available for trading, increasing the supply and potentially lowering the overall price.

The previous lock-up expired on October 29, when US stock markets were closed because of Superstorm Sandy. Facebook's stock fell nearly 4 per cent two days later, when the stock market reopened.

Lock-ups are common after initial public stock offerings and are designed to prevent a stock from experiencing the kind of volatility that might occur if too many shareholders decide to sell all at once.

Facebook's stock saw its biggest one-day gain on October 24, the day after the company reported stronger-than-expected third-quarter results and detailed for the first time how much money it made from mobile ads. The stock, which added 19 per cent that day, closed at $23.23.

Even with Wednesday's gain, it is still 8 per cent below that price.

with inputs from Associated Press