In the run up to Twitter’s much-anticipated IPO, the company has done its utmost to distance itself from the troubles that beset Facebook when it went public. But one risk Wall Street may be overlooking is how the supply of Twitter shares will be made available for sale.
The supply of Twitter shares is set to increase dramatically in the months following the company’s IPO. For the first three months of Twitter’s life as a listed company, only the shares issued as part of the IPO will trade on the public markets; the remaining 87% of its outstanding shares will remain in “lock-up”—shares doled out to high-ranking employees and longterm investors that can’t be sold until long after the IPO. The lock-up structure is meant to stabilize the share price by staggering the available supply of shares.
Of the remaining 87% in lock-up, about 10 million shares held by non-executive employees will be available for sale in February; the bulk of the rest will hit the market in May.
When the expiration of Facebook’s lock-up period approached, short-sellers anticipated that employees and longterm shareholders would cash out and cause a glut of shares on the market, driving down the stock price. Groupon shares suffered a similar fate.