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

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Scott Raynovich 12/4/2012 | 9:00:13 PM
re: Eyes on Corvis Lockup Expiration I wonder what Cisco will do with their stake in Corvis. Will they sell or hold?
montana 12/4/2012 | 9:00:13 PM
re: Eyes on Corvis Lockup Expiration we will see
techbull 12/4/2012 | 9:00:11 PM
re: Eyes on Corvis Lockup Expiration as always trying to add fuel to already factored in news.
Steve Saunders 12/4/2012 | 9:00:10 PM
re: Eyes on Corvis Lockup Expiration Billy,

I've been watching your posts for a while.

You work for Corvis, don't you?

BillyBeer 12/4/2012 | 9:00:10 PM
re: Eyes on Corvis Lockup Expiration It's funny they mention that ONIS is down 50% since their lockup ended in September. Uh, didn't the stock market start it's downward spiral after September?

There is a huge demand from the Institutions for this stock. I would not be suprised at all if by NEXT Friday the stock is trading at $35.
munchkin 12/4/2012 | 9:00:09 PM
re: Eyes on Corvis Lockup Expiration Sure, sure, but that's not a reason not to cover it. The article simply states the facts.

montana 12/4/2012 | 9:00:06 PM
re: Eyes on Corvis Lockup Expiration yeah, it's ok to cover it, but let's put some intelligence in it as well. like the fact that the market was bearish in september and after. ciena, for example, traded up during and immediately after its lock up release.

sure it seems likely that the added float will put downward pressure on the stock.

but my sense of lightreading is that it hopes that by being consistently negative on corvis the company will breakdown and give lightreading more information. journalists everywhere favor the folks who give them info and dis those who don't. fat chance that strategy will work here.

but does anyone seriously believe that corvis is not one of the top ten optical stocks, come on lightreading, you could at least be a bit less transparent.
conway 12/4/2012 | 9:00:06 PM
re: Eyes on Corvis Lockup Expiration While Corvis stock will certainly come under pressure from the lock up expiration on Tuesday, the earnings announcement on Thursday will likely be much more critical. A massive sell-off on Tuesday may indicate trouble ahead, but discerning investors will keep an eye out for the action on Thursday.

At that time, we'll know if the first quarter was blown up to artificially impress or if it was indicative of a longer, sustainable trend. More importantly, most investors should look for new customer announcements. Front-loaded contracts from Broadwing, Williams, and Qwest will only carry Corvis so far and new wins are necessary to show continuing, rapid revenue growth.
BillyBeer 12/4/2012 | 8:59:56 PM
re: Eyes on Corvis Lockup Expiration Hey, it looks as though someone is trying to become me. They took my Username and added an "s". Can't wait to hear what this poster has to say.

SPARKLE 12/4/2012 | 8:59:52 PM
re: Eyes on Corvis Lockup Expiration Cisco will increase their stake.
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