Yelp shares surged as much as 22% early Wednesday as Yelp's 180-day "lockup" on early investor and insider shares expired, lifting rules that barred those investors from selling more shares into the market after an initial public offering.
About 52.7 million shares were freed up Wednesday, including shares owned by insiders such as Chairman Max Levchin and Chief Executive Jeremy Stoppelman, increasing the number of Yelp shares eligible for trading by more than seven times. Other companies seeing lockup expirations have experienced price declines on those days, notably Facebook Inc. (FB), which fell 6.9% on Aug. 16, the day a batch of its shares was allowed to hit the market. When Groupon Inc. (GRPN)'s first lockup period expired on June 1, the online stock slumped 8.9% to a new low.
But Yelp shot up. Its shares were recently higher by $3.64, or 20%, at $21.90, with trading volume already surpassing five times the daily average just before noon EDT on Wednesday.
"This isn't what you would expect with a lockup expiration," said Caitlin Duffy, an analyst at Interactive Brokers.
The company's shares had been on the wane ahead of Wednesday's lockup expiration, tumbling 31% over the three weeks leading up to the event.
Wednesday's jump higher may have been driven by bearish traders looking to close out positions after large sellers did not materialize in the market, according to Ms. Duffy.
Bears had held sway ahead of the Yelp lockup expiration. As of Tuesday, about 29% of Yelp shares were on loan to traders looking to "short" the company, according to market data firm Markit. When traders short shares, they sell borrowed stock in hopes of being able to buy it back later at a lower price for return to the lender.
While short-selling is generally a negative sign, when short interest gets too high, it can lead to a "short squeeze" that pushes shares higher. A short squeeze occurs when short sellers buy back shares at a higher price, rather than the lower price they had hoped for. As a stock climbs, more and more short sellers scramble for shares--pushing the price up--for fear the stock will rise even higher and they will be forced to pay still more for stock to return to their lenders.
On Wednesday, Yelp shares traded slightly lower for the first two minutes of trading before shooting up 9.5% by the eighth minute.
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