Facebook Plays Defense

Facebook Inc. FB +2.05% took steps Tuesday to reassure investors and employees worried about its plummeting stock price, as the social network's shares hit new lows.

In a regulatory filing Tuesday, Facebook said Chief Executive Mark Zuckerberg won't sell any stock in the company for a year, and that two of its directors—Marc Andreessen and Donald Graham—have no plans to sell their personal holdings beyond the amount needed to cover their tax liabilities.

Facebook also detailed how it will essentially buy back 101 million shares when it issues previously restricted stock units to its staff in October. At recent prices, it would spend roughly $1.9 billion to keep those shares off the market.

Together, the steps function like a kind of defensive wall around the Facebook share price. They effectively reduce the amount of Facebook stock in the public market and spread out the amount of shares that could flood the market in November after a lockup period on the stock expires.

Facebook spokesman Larry Yu said the details in the filing were approved by the company's compensation committee on Aug. 30. "We wanted to get the filing out as soon as we could after that meeting as a measure of clarity and transparency," he said.

Mr. Yu declined to comment on the impact that the moves might have on investors.

Facebook's stock has been in a tailspin since the Menlo Park, Calif., company's initial public offering in May. After making their market debut at $38 a share amid much hype that month, they have plunged more than 50% over concerns about how much the company is really worth.

On Tuesday, Facebook's shares dropped to a fresh low of $17.73 in 4 p.m. trading after analysts at the two biggest underwriters for the company's IPO—Morgan Stanley MS +3.64% and J.P. Morgan Chase JPM +4.26% & Co.—cut their price targets on the stock.

In after-hours trading following the regulatory filing, Facebook's shares ticked up 1.7% to $18.03.

Facebook's stock has continued to suffer as share lockups began expiring last month, releasing 271 million shares—or nearly 13% of those outstanding—on the market. More lockup expirations in October, November and December will allow insiders and others to sell more than 1.4 billion shares.

Last month, director and early investor Peter Thiel sold the majority of his Facebook holdings—some 20.1 million shares—after restrictions on insider selling lifted.

Facebook has publicly said little about its stock slide but internally is reassuring employees about their shares. In a companywide meeting last month, Mr. Zuckerberg told them it may be "painful" to watch the stock plunge, but that investments Facebook has made will soon bear fruit.

In its filing, Facebook said Mr. Zuckerberg "has no intention to conduct any sale transactions in our securities for at least 12 months." Mr. Zuckerberg sold Facebook stock in the IPO to cover his tax liabilities, and now holds about 444 million shares of Class B common stock and an option exercisable for an additional 60 million Class B shares.

A Facebook spokesman declined to make Mr. Zuckerberg available to comment.

A spokeswoman declined to make Mr. Andreessen available for comment. Mr. Graham declined to comment.

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Facebook also said it plans to withhold 45% of employees' restricted stock units to cover their tax liabilities, paying the obligations, worth about $1.9 billion, in cash and from existing credit facilities. In doing so, it would remove 101 million shares from the market for accounting purposes, about 4% of the shares outstanding. Facebook also said the lockup date for some employees' stock would be Oct. 29, after previously suggesting it might fall on Nov. 14.

"The disclosures from Facebook highlight how sensitive the management team is to the share price today," said Stifel, Nicolaus & Co. analyst Jordan Rohan. But, with Facebook's freely tradable float increasing by one billion shares by mid-November, he said, investors may continue to suffer from "stock indigestion."

"The only treatment for this indigestion is a steeper trajectory of earnings growth than analysts currently estimate. Otherwise, it will just take time for the digestive process to run its course," he said.

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