Trading specialist Jason Hardzewicz (C) is asked about order prices on the floor of the New York Stock Exchange, November 14, 2012. REUTERS/Chip East
Today: On a generally negative day for Wall Street and tech stocks, Facebook defeats the lockup-expiration jinx and Cisco (CSCO) bounces on the strength of a strong earnings report.
Facebook and Cisco bounce, prove the doubters wrong
After doomsayers doubted Facebook stock would be able to withstand the largest release of fresh stock since its initial public offering and cast aspersions on Cisco's ability to weather a gloomy global economy, both companies persevered and found big gains Wednesday on Wall Street.
Facebook's gains were the larger of the two, and the more surprising. The Menlo Park social-networking company fell 6.3 percent to a then-record low on the day its first lockup -- which prevents insiders and employees from selling stock within a specified time period after an IPO -- ended, and dipped another 3.8 percent when the second group of restricted shares were released. Wednesday's expired lockup released more shares than the previous two combined, leading many to predict a depressed stock price due to the higher supply of Facebook shares.
However, Facebook stock shot higher at the open of trading and continued to climb, hitting a high of $22.50 -- 13.3 percent higher than Tuesday's closing price -- before closing at $22.36, a 12.6 percent daily gain. The sharp gain was reminiscent of Yelp's 22.5 percent increase on the day its lockup expired, as investors who had shorted the stock -- betting that it would drop on the lockup day -- were caught by surprise when insiders didn't sell, creating a situation known as a "short squeeze" that creates a jump. In Facebook's case, however, there wasn't a wave of stock shorts, Reuters reported, with only 28 percent of the shares available for such a deal claimed after that share hit 80 percent at times last summer.
"Everything would seem to indicate the market is losing its appetite to short Facebook," Astec market analyst Karl Loomes wrote.
Instead, analysts said that investors who were impressed by Facebook's most recent earnings report, which showed the first signs of mobile monetization, were likely waiting to pounce on the stock once it passed Wednesday morning's worrisome hurdle.
"There was a lot of money that was waiting on the sidelines until today," Pivotal Research's Brian Wieser told The Wall Street Journal.
"There were a lot of institutional investors just waiting to get over this procedural hump. Given that the earnings were good and that there's better than likely chance of favorable performance in the future, anyone shorting the stock is at much higher risk," Weiser said in a separate interview with Bloomberg News.
With fresh money jumping in to buy Facebook in the third quarter and Wednesday, and no big dump of new shares by investors whose shares were freed up -- "I'm sure we're seeing some selling from guys whose shares are unlocking, but the supply is not nearly as much as everybody expected," said Sterne, Agee & Leach analyst Arvind Bhatia told Reuters -- demand seemed to outstrip supply and send Facebook to its second-largest one-day percentage increase yet.
"Some of the investors are thinking the worst is behind Facebook and now is maybe the time to go long on the stock," Topeka Capital Markets analyst Victor Anthony told Bloomberg.
Cisco's rise followed the San Jose networking giant's positive earnings report issued after the markets closed Tuesday. Cisco reported earnings and profits higher than Wall Street's expectations, helping to beat down thoughts that weakness in Europe would hamper enterprise tech sales.
In response, Pacific Crest analyst Brent Bracelin upgraded the company's stock and said, "After a challenging two-year period for Cisco, the company could enter 2013 in a much better position." Investors seemed to agree, as Cisco shares rose as high as $18.25 in Wednesday trading, 8.3 percent higher than Tuesday's closing price, before settling down for a 4.8 daily boost to $17.66.
Wall Street falls to three-month lows on concerns both global and local
The rest of Wall Street wasn't as fortunate as Facebook and Cisco, as all three major U.S. stock indexes declined more than 1 percent Wednesday after a late plunge that sent the Dow Jones industrial average and Nasdaq composite index to their lowest levels in three months.
Experts said stocks are suffering in the face of uncertainty and strife, as European weakness, Middle East violence, retail sales damaged by Hurricane Sandy and the ongoing "fiscal cliff" debate on Capitol Hill weigh on investors' minds.
"Sentiment has clearly turned in the face of some pretty substantial headwinds, like Europe flaring up, China slowing, U.S. uncertainty and some weakness in corporate profitability," Beata Kirr, senior portfolio manager for Bernstein Global Wealth Management, told The Wall Street Journal.
Economic reports showing a slowdown in retail and auto sales were especially damaging, as consumer spending has been one of the bright spots in the U.S. economy. With Sandy making landfall and bringing the Northeast to a standstill, retail sales dropped 0.3 percent for October and auto dealers saw a 1.8 percent drop. Experts said the drop wasn't entirely because of Sandy, however.
"Looking past (Sandy's) impact, U.S. consumers appeared to dial it back a notch," BMO Capital Markets economist Robert Kavcic told The Associated Press. "There was relatively broad-based weakness in this report."
The Dow and Nasdaq closed at their lowest totals since late June with 1.5 percent and 1.3 percent dips, respectively, while the Standard & Poor's 500 fell 1.4 percent.
Big name tech companies suffer, NetApp finds earnings success
Silicon Valley tech stocks performed poorly aside from Facebook and Cisco, as the SV150 dropped 0.8 percent despite the large increases from those two companies. The nation's most valuable company, Apple (AAPL), dropped 1.1 percent, and other Valley stalwarts such as Google (GOOG) (down 1 percent), Oracle (ORCL) (down 1.5 percent), Intel (INTC) (down 1.6 percent) and eBay (EBAY) (down 2.7 percent) dropped.
Intel rival Advanced Micro Devices dropped 7.7 percent one day after it reportedly hired JP Morgan to pursue possible revenue-raising avenues, but shot down investor hopes of a sale. Adobe (ADBE) dropped 0.9 percent after it was forced to close down a customer-focused website after a reported data breach by a hacker who also claimed to have taken data from Yahoo (YHOO), which fell 0.1 percent.
On the positive side, Sunnyvale data-storage company NetApp rose 3 percent in Wednesday's regular session, then jumped more than 10 percent in after-hours trading thanks to an earnings report that beat expectations and announced an acquisition and stock-buyback program. San Francisco social-gaming company Zynga managed a 1.4 percent gain after announcing a management shake-up that included a defection to Facebook.
Silicon Valley tech stocks
Up: Facebook, Cisco, NetApp, Zynga, Juniper, Splunk, Jive, Workday, Netflix
Down: AMD, SunPower (SPWRA), eBay, Yelp, Nvidia, VMware, Electronic Arts (ERTS), Intel, Palo Alto Networks, Symantec, Oracle, Intuit (INTU), Applied Materials, Apple, Google
The tech-heavy Nasdaq composite index: Down 37.08, or 1.29 percent, to 2,846.81
The blue chip Dow Jones industrial average: Down 185.23, or 1.45 percent, to 12,570.95
And the widely watched Standard & Poor's 500 index: Down 19.04, or 1.39 percent, to 1,355.49
Check in weekday afternoons for the 60-Second Business Break, a summary of news from Mercury News staff writers, The Associated Press, Bloomberg News and other wire services. Contact Jeremy C. Owens at 408-920-5876; follow him at Twitter.com/mercbizbreak.
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