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How The Expiration Of A Lock-Up Affects A Company's Shares

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How The Expiration Of A Lock-Up Affects A Company's Shares

After a company hosts an Initial Public Offering, they enter a lock-up period, sometimes known as a lock-in or locked-up period. The purpose of this 90–180 day period is simple and intuitive: to prevent insiders and large shareholders from selling off their stock too quickly as a means of protecting a company's share price.

With the expiration of a lock-up period, in some ways and in some cases the floodgates open. If conditions are right, this can lead to massive numbers of shares being sold off at once, affecting the share price of the company.

Here are some examples of lock-up expirations negatively affecting the share price of a company:

  • Twitter Inc (NYSE: TWTR): In May 2014, shares of Twitter fell by nearly 18 percent and on record volume, bringing the stock to a new (at the time) all-time low.
  • Fitbit Inc (NYSE: FIT): In February, shares of Fitbit dropped 8 percent, bringing the stock to a new all-time low.
  • Square Inc (NYSE: SQ): In May, Square's lock-up expiration was a major negative catalyst for the stock, even leading into it with shareholder's reaction to analyst views.

So, for these three companies, the expiration of the lock-up period led to a falling share price that day. Current shareholders of a stock with an upcoming lock-up period should be aware of the possible negative effect the expiration can have on a stock.

For outsiders, a lock-up period expiration may provide an opportunity to buy at a record low share price.

Upcoming Lock-Up Expirations

  • Aeglea Bio Therapeutics Inc (NASDAQ: AGLE): Tuesday, October 4.
  • MGM Growth Properties LLC (NYSE: MGP): Monday, October 17.
  • American Renal Associates Holdings Inc (NYSE: ARA): Tuesday, October 18.
  • Secureworks Corp (NASDAQ: SCWX): Wednesday, October 19.
  • Red Rock Resorts Inc (NASDAQ: RRR): Monday, October 24.
  • Yinteck Investment Holdings Ltd - ADR (NASDAQ: YIN): Monday, October 24.
  • Global Water Resources, Inc. (NASDAQ: GWRS): Tuesday, October 25.

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