Eyes on Corvis Lockup Expiration
Sometimes it's best to consider simple laws of supply and demand when looking at a technology stock.
In this light, things do not look good, at least in the short-term, for shares of Corvis Corp. (Nasdaq: CORV). On Jan. 24, an enormous supply of insider shares -- some 183 million -- will for the first time become available to sell on the open market.
These shares account for 55 percent of the 332 million shares of Corvis stock that are outstanding. They belong to venture capital investors, corporate executives and directors, and employees of the company.
A Corvis spokeswoman confirmed that the shares would be unlocked on the 24th, but said the company does not comment on the effects of the IPO lockup expiration.
"It's going to hurt the stock," says Gina Sockolow, an analyst at Brean Murray & Co. Inc., who covers the stock. "You can see this has happened with every other company that's had a stock unlock -- it's an overhang."
Indeed, other fresh networking IPOs have been battered after their insider shares have become unlocked. For example, shares of ONI Systems Inc. (Nasdaq: ONIS) are down 50 percent since the insider shares started to become unlocked in early September. ONI, rather uniquely, unlocked the insider shares early and is unlocking further shares at staggered intervals. More are scheduled for parole next week.
What's most unusual about Corvis is the sheer volume of the shares becoming unlocked. With the company regularly trading under 10 million shares a day, just a small percentage of insiders selling is likely to put pressure on the share price.
According to recent SEC filings, the major shareholders of Corvis include David Huber, the CEO and founder, who owns 95 million shares of stock, or 28 percent; venture captial firm Kleiner Perkins Caufield & Byers, 35 million shares, or 11 percent; Cisco Systems Inc. (Nasdaq: CSCO), 18 million shares, or 5.4 percent; and Meritech Capital Partners, which owns 17 million, or 5.2 percent.
Who's likely to sell? The venture capitalists, who usually use the lockup expiration as an opportunity to cash in on some of their investment. It's also common for some employees and executives to cash in some of their stock as soon as they can. Other shareholders likely to consider raising some cash with the stock include Corvis customers Broadwing Communications (NYSE: BRW) and Williams Communications Group (NYSE: WCG).
Glenn Falcao, a former VP of Corvis, once owned 4 million shares, or 1 percent of the company, before leaving last year. But it's not clear how many of the shares Falcao may have forfeited when he left.
Late Friday, Corvis shares were trading at 28.75, 70 percent off their high of 108, but up 100 percent from the recent low of 14.38.
-- R. Scott Raynovich, executive editor, Light Reading http://www.lightreading.com