LONDON, ENGLAND - NOVEMBER 07: In this photo illustration, The Twitter logo is displayed on a mobile device as the company announced it's initial public offering and debut on the New York Stock Exchange on November 7, 2013 in London, England. Twitter went public on the NYSE opening at USD 26 per share, valuing the company's worth at an estimated USD 18 billion. (Photo by Bethany Clarke/Getty Images)
Twitter employees face a Catch-22 situation -- they can cash out company shares starting Saturday, but if too many of them do it can also lead to a drop in price.
The actual number of shares is small in comparison to the number that exists -- it's only about 9.9 million shares or 1.8 percent of outstanding shares, according to the Wall Street Journal. Essentially these are the shares given to the "little people" or non-executives. It's also a much different strategy from Facebook which unleashed 271 million shares on the market in its first opportunity to cash out. Twitter had its initial public offering, or IPO, on Nov. 7, 2013.
The Facebook lockup expiration seemed to attract those looking to short the stock, or those betting on the shares will drop, and the price dropped to a new low in August 2012. Perhaps because of this example, Twitter's rollout of lockup expirations is modest in comparison. On May 6, Twitter's other 474.7 million shares will be available -- this is the biggest expiration because it's most of Twitter's head honchos and early investors.
Short sellers are looking for a huge glut of shares on the market because that generally means demand and price could drop. However, thanks to a lackluster earnings report, Twitter's stock didn't need a glut of shares to drop in price -- it dropped 24 percent last week on its own merit.
The first lockup expiration is now a way to see how the stock price will fare, according to Donald Dion, owner of DRD Investments, who is looking to short sell. “It’s a small test for what will happen on May 6 when more people can sell,” he told the WSJ.
Twitter's conservative approach to releasing employee shares is unlikely to tank its stock. Instead, it seems the microblogging service's share price will be affected mostly by profits and revenue -- good or bad.