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Technology Stocks : F5 Networks, Inc. (FFIV) -- Ignore unavailable to you. Want to Upgrade?

To: KM who wrote (602)	12/17/1999 9:03:00 PM
From: KM	Respond to of 1801

F5 Networks: Lock in Gains on Lock-Up Tell us what you think in FFIV's Board. individualinvestor.com Senior analyst Garrett Bekker and Andrew Huang (12/1/99) Anybody who even casually follows Internet stocks doesn't need to be reminded that many Internet IPOs have been racking up astronomical gains, frequently more than 200% to 300% in their first day of trading. Part of this can be explained by the fact that many of these companies are breaking new ground in industries that are poised to explode. However, an additional part of this performance is carefully orchestrated. A common strategy these days is to “manage” offerings. This usually involves making sure the amount of shares offered to the public for trading falls far short of the expected demand. This helps squeeze the price of the stock to dizzying heights, kind of like forcing a swimming pool through a drinking straw. Like this Article? When the stock inevitably takes off, this gets the company free P.R. in the form of prime placement on the nightly business news and on the front page of The Wall Street Journal. Once interested has been generated and investors are salivating for a piece of the action, insiders can sell their shares to the public and take some profits on their hard work in creating the company. What's to prevent insiders from selling the bulk of their shares right away and making a huge profit, leaving individual investors in the dust with huge losses? Lock-up agreements. A lock-up agreement is a legal precaution to prevent insiders at a newly public company from selling all of their shares immediately after the IPO. In general, a lock-up period lasts for six months until trading restrictions expire. At this point, insiders then have the option to sell their shares. How should this phenomenon affect your trading strategy? On November 2nd, Senior Analyst Garrett Bekker noted that the expiration of Silknet Software's (NASDAQ: SILK - Quotes, News, Boards) “lock-up” agreement added an additional 1.5 million shares to the 3.45 million previously available for trading, bringing the total float to approximately five million. For the day, the stock closed down $9.25 to $70.75, a 12% drop from the previous day's close of $80. Since the company's fundamentals and business strategy had not changed at all, this turned out to be a great buying opportunity. Within a week, the stock had rebounded as high as $100.13, and is currently trading around $90. Get ready for another “lock-up” opportunity. F5 Networks (NASDAQ: FFIV - Quotes, News, Boards), one of the leaders in Internet traffic management, has been seeing a great deal of action recently. After trading in the $60 to $85 range from August through September, shares of F5 Networks reached a high of $160.50 on Nov. 18th, but have since dropped to a recent $113.13. Why has the stock been trading down in the last two weeks? After all, there has been no negative news regarding the company during that time. Again, the Lock-up agreement. F5 Networks' lock-up expires Thursday. The company currently has roughly 20 million shares outstanding, with 7 million to 8 million currently available for trading (float). The expiration of the lock-up agreement will make approximately 11 million to 12 million additional shares available. The emphasis is on the word available, since there is no guarantee that these shares will actually be sold and made available for trading. In fact, many of the shares are owned by insiders, who will undoubtedly wish to retain the bulk of their ownership stakes. Although it remains to be seen how many insiders will sell their shares Thursday, this lull in the stock price looks to be a temporary one. As Monday's close, F5 is trading at 24.4 times FY 2000 revenue forecasts, nearly half that of competitor Alteon Websystems (NASDAQ: ATON - Quotes, News, Boards) at 44.5, and nearly a third that of Foundry Networks (NASDAQ: FDRY) at 62.2. Bottom Line: If F5 continues to weaken, this merely presents an even better buying opportunity for this stock. Look for a rebound as most companies with sound fundamentals power through lock-up agreements and resume their ascent. Also keep an eye out for F5 Network's red-hot competitors, as they have lock-up expirations in the next year: lock-ups for Alteon and Foundry Networks both expire in February.