Facebook shares fell nearly 4 per cent in busy trade on Wednesday as the company allowed employees to start selling roughly 230 million shares less than six months after its rocky market debut.
The world's largest social network waived a provision that prevented employees from selling shares until November 14, making Facebook shares worth about US$5 billion ($6.1 billion) at current prices eligible for sale in the public market.
Facebook staffers were meant to be able to sell their vested shares on Monday, but the two-day market closure due to powerful storm Sandy saw Wednesday become the first trading day.
The flood of shares set to hit the market as insider trading "lock-up" provisions expire in several phases have pressured Facebook's stock for months.
"I don't really understand why Facebook (chose) to unlock virtually all of its compensation within the year of its IPO, but they did," said Michael Pachter, an analyst with Wedbush Securities.
"They made a mistake and set the company up for volatility."
More than 1 billion Facebook shares held by employees, insiders and early investors are set to become available for trading by year's end, a significant increase from the "float" of roughly 692 million shares that were available for trading as of Sepember. 30.
The largest batch of additional shares will become eligible to trade on November 14, when the lock-up expires on roughly 800 million shares.
Facebook's 28-year-old chief executive, Mark Zuckerberg, has committed to not sell any shares before September 2013. But board member and early Facebook investor Peter Thiel sold the majority of his holdings in August, raising criticism from some investors.
The world's No 1 online social networking website, with roughly 1 billion users, experienced brisk demand for its shares when it was a private company and became the only US company to debut with a market value of more than US$100b.
But shares of Facebook are down more than 40 per cent since the IPO as investors worry about the company's ability to keep up revenue growth and the large pool of additional shares in the lock-up that are now hitting the market.
Wall Street also has cast a gimlet eye on Facebook and its ability to attract mobile revenue as more people turn to smartphones and tablet devices to access the Web.
Last week, Facebook said it increased mobile advertising revenue at a faster than expected pace, totaling US$150 million in the third quarter. Estimates had pegged mobile revenue at US$40 to US$US50m in the second quarter.
Facebook's stock was down 3.7 per cent at US$21.14 in Wednesday trading, off an earlier low at US$20.73. The company priced its shares at US$38 each for its IPO.
Facebook drew US$1.5b under a loan facility last week to cover the tax withholding obligations of vested employee shares. The company has said it will cover the total tax bill with existing cash and with borrowing from its credit facilities.