Facebook's first outside investor, prominent tech financier Peter Thiel, disclosed Monday that he unloaded most of his stake in the social networking company last week as Facebook's stock was sinking to nearly half its initial public offering price.
Thiel, who put $500,000 into the fledgling social networking service back in 2004, reaped more than $400 million by selling 22.3 million shares on Thursday and Friday.
In a regulatory filing on Monday, Thiel said he had made plans to sell the stock last May. But some analysts criticized the sale, suggesting it reflects badly on the company and contributed to a further drop in Facebook's stock price last week.
"Facebook could have locked him up for much longer if they had wanted to," said Michael Pachter, a financial analyst with Wedbush Securities, who noted that Thiel sold as soon as he was freed from a "lock-up" restriction that barred him from selling shares for 90 days after the company's stock market debut.
An expert in securities law cautioned against viewing Thiel's actions as a vote of no-confidence in Facebook's future, however.
"It would be stretching things to try to read anything into this particular transaction about where Facebook is today," said Santa Clara University law professor Steve Diamond.
"When you see that the trading plan was adopted on May 18, it only tells you what he thought about the stock
A spokesman said Thiel had no comment Monday. Thiel, who was a co-founder of PayPal and an early investor in other tech companies, still owns about 5.6 million shares of Facebook and remains a director of the company.
Facebook stock has declined sharply since it went on sale for $38 a share in May. Shares sunk to $19 last week after the first of several "lock-ups" expired and insiders became eligible to sell up to 271 million shares, on top of the 421 million shares sold in the IPO. The lock-up is a typical restriction aimed at keeping investors from flooding the market by selling too many shares too soon.
The stock hit a new low of $18.75 on Monday before rallying later in the day and closing at $20.01.
Thiel, already a billionaire at the time, was the first outside investor to put money into Facebook soon after CEO Mark Zuckerberg and his cofounders launched the social network as a business in 2004. In addition to his original $500,000, Thiel was one of several investors in a $25 million Facebook funding round in 2006.
Although he sold some of his shares later, while the company was still privately held, Thiel still owned about 2.5 percent of Facebook when it went public earlier this year. He sold 16.8 million shares in the May 18 IPO, reaping $638 million at the IPO price of $38 a share.
The sale last week was made under the terms of a legal plan that Thiel adopted at the time of the IPO, according to documents he submitted Monday to the Securities and Exchange Commission. That type of plan is often adopted by so-called inside investors, such as company directors, so they can schedule future sales of stock without appearing to act on the basis of inside information about the company.
Essentially, the plan committed Thiel to sell the majority of his remaining stock when the lock-up expired 90 days after the IPO, according to a source familiar with the matter, although in theory he might have been able to cancel the sale at some point.
Pachter said the sale is further evidence that Facebook misjudged the demand and value of its stock. The company could have required insiders to hold their shares for a longer period, he said, but "they believed people really wanted to buy as much Facebook stock as the market could possibly bear."
Contact Brandon Bailey at 408-920-5022; follow him at Twitter.com/BrandonBailey