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Yelp (NASDAQ: YELP) shares have risen 22% today. And that’s good news for anyone who owns Facebook (NASDAQ: FB) shares.
Few expected a surge from Yelp today. It’s been 180 days since the user reviews website went public, which means today was one its scheduled lockup releases.
A lockup release is when an agreement between the underwriters of an IPO and some of the stock’s early investors expires. Lockup agreements are a way for the underwriters to limit volatility in a stock by “locking up” major investors – venture capitalists, company executives, etc. – for a given period of time.
Those periods of time typically last between 120 and 180 days. Once a lockup agreement expires, investors are free to sell off their shares.
Yelp’s 180-day lockup release was today, and 52.7 million shares were free to be traded. Wall Street was bracing for a major sell-off, preemptively knocking the social media stock down 31% in the last three weeks entering the day.
A further sell-off was expected. Instead, the reverse has happened. Investors are snatching up Yelp shares today at the fastest clip in the stock’s brief six-month history.
Facebook investors should take solace in Yelp’s surprising lockup release-day surge.
As you likely know, Facebook held its initial public offering on May 18. So its lockup agreements are starting to expire.
The first lockup release freed some 400,000 Facebook shares, and the stock promptly fell 10% in two days.
With 1.5 million more shares set to be released from their lockup agreements in the next six weeks, the general consensus has been that the Facebook sell-off isn’t over yet.
However, with Yelp having its biggest one-day surge in the midst of a lockup release, perhaps Facebook isn’t as doomed as we thought.