Uber's Lockup Period Expires Wednesday: What It Means For Investors

Ride-hailing service Uber Technologies Inc (NYSE: UBER) did not have the best of debuts, with the shares listing at a discount to the offer price of $45 per share and closing the debut session down 7.6%. 

Benzinga · 11/06/2019 15:27

Ride-hailing service Uber Technologies Inc (NYSE: UBER) did not have the best of debuts, with the shares listing at a discount to the offer price of $45 per share and closing the debut session down 7.6%. 

With the lockup period on the shares expiring Wednesday, the stock is seeing incremental weakness.

A Rough Ride After Going Public

Uber shares dropped to a low of $36.08 in the session following the listing, but recovered well enough to trade in a range around the IPO price.

The shares came under renewed selling pressure after the release of Uber's second-quarter results Aug. 8, when it reported a revenue miss and a loss of $5.24 billion, weighed down by stock-based compensation.

Subsequently, the stock pulled back steadily before settling around the $30 level.

The release of third-quarter results Monday did not help matters much, as Uber lost a further $1.2 billion, although the results weren't any worse than the Street feared.

CEO Dara Khosrowshahi's assurance that the company will turn positive in 2021 did not assuage investor's concerns, as the stock tumbled to a then-record low of $27.97 Tuesday.

Some of the weakness may also have to do with the Wednesday's lockup period expiration.

What Lockup Expiration Means For The Stock 

An IPO lockup period is a restriction placed on insiders — including founders, promoters, senior management and employees — from selling shares for a specified period. Usually, the period is between 90 and 180 days.

The purpose of having this restrictive period is to protect stock prices from a precipitous drop, should insiders opt to cash in on their holdings all at once. A lockup is decided based on the prerogative of the company and is not mandated by the SEC.

Uber's lockup expiration is expected to flood the public market with an incremental 763 million shares worth about $20 billion, Business Insider said, quoting Wedbush analyst Daniel Ives.

About 90% of Uber's outstanding shares will now be available for trading.

With Uber trading near all-time low, insiders may hold back in anticipation of a better price in the future.

The stock was down 1.82% at $27.50 at the time of publication. 

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