Facebook's jump in early trading was not unprecedented. Shares of online review site Yelp rose more than 20% in late August after a lockup because there was less selling than expected.
On Wednesday, employees and other investors holding 777 million shares of Facebook, the No. 1 social networking company, were allowed to sell their shares after the lockup expired on those shares. It's customary for companies to lock up shares held by early investors and employees for several months after an initial public offering so a supply of stock doesn't flood the market as employees cash out.
Shares of Facebook fell after smaller amounts of shares were unlocked twice before. Shares dropped 6% to a new low in mid-August and dropped 3% following a share unlock in late October. On average, IPOs tend to fall 2% amid share unlocks, says Jay Ritter professor of finance of the University of Florida.
Investors have gone from being ebullient about Facebook's prospects to being somewhat guarded.
Shortly after the May IPO, investors began to question the company's ability to make money from users who access the site from mobile devices. The company's first reported quarter failed to impress as results came in mostly in line. Facebook's second reporter quarter in late October, though, encouraged investors as it topped expectations and showed the company got 14% of revenue from mobile advertising.
(Copyright © 2012 USA TODAY)