StashLearn
Get the app
Get the app

Join millions of investors on Stash

Investing, simplified

Start today with as little as $5
Get the app
Teach Me

How Lockup Periods Can Affect Stock Prices

November 11, 2019

2 min read

In recent weeks, Uber and Beyond Meat have been in the news because their lockup periods have expired.

And the expiration of these lockups has caused some fluctuation in their stock prices, according to news reports.

If you’re confused by what a lockup period is, and what it has to do with a public company’s stock, read on and we’ll explain.

What’s an IPO again?

IPO is shorthand for something called an initial public offering. An IPO is the first time a company sells its shares to the public through a stock exchange such as the Nasdaq or the New York Stock Exchange (NYSE).

When a company wants to open new stores, build or acquire a factory, or expand in some other way, it may need additional resources to pay for it. Company executives may use an IPO to raise capital, or money, to grow a business.

Often a company does not yet have enough internally generated funds to finance such projects. Going public is one way to raise a relatively large sum of money in a relatively short period of time.

It’s important to know that following an IPO, a new stock can be subject to significant increases or decreases in market price. That’s known as volatility. Stock volatility can be particularly high in the first few months following an IPO and as a result, so can the potential for short-term losses.

What’s a lockup period?

Often, fluctuations in stock prices occur following an IPO, due to the expiration of a lockup period. A  lockup period is when company insiders, such as employees granted stock options or executives who own shares, sign an agreement that prohibits them from selling shares for a specified period of time. (For both Uber and Beyond Meat, the lockup period was 180 days following their respective IPOs.)

When lockup periods expire, insiders or other early investors may want to sell their stock in order to make a profit from their shares. Remember that previously, the company was private and there was no public market for their shares.

When these insiders start to sell their shares, sometimes that can cause a company’s stock price to fall. That’s because more shares become available for investors to buy. And an increase in the number of shares for sale can cause prices to fall. (It’s one of the basic laws of economics, called the law of supply and demand. Essentially, if there’s more of something, such as stock, and demand remains constant, prices fall.)

Find out more

You can find out more about the lockup period and other information about Beyond Meat, Uber, or any other company that has had an IPO by looking at the prospectus, a publicly available document on the Securities and Exchange Commission’s website EDGAR.

Remember the Stash Way—invest for the long-term, invest regularly, and don’t put all of your eggs in one basket.

Welcome to your new financial home.

Start today with as little as $5.

Get the App

Believe in an industry?

You can invest in it and many more!

See options on Stash!

Believe in an industry?

You can invest in it and many more!

See options on Stash!

By Jeremy Quittner
Jeremy Quittner is the senior writer for Stash.

Investment Profile

Bonds Worldwide

An International Bond ETF on Stash

Learn more
Explore more articlesChoose a topic to learn more about
Technology politics love and money pop culture budgeting
Disclaimers

This material has been distributed for informational and educational purposes only, represents an assessment of the market environment as of the date of publication, is subject to change without notice, and is not intended as investment, legal, accounting, or tax advice or opinion. Stash assumes no obligation to provide notifications of changes in any factors that could affect the information provided. This information should not be relied upon by the reader as research or investment advice regarding any issuer or security in particular. The strategies discussed are strictly for illustrative and educational purposes and should not be construed as a recommendation to purchase or sell, or an offer to sell or a solicitation of an offer to buy any security. There is no guarantee that any strategies discussed will be effective.

Furthermore, the information presented does not take into consideration commissions, tax implications, or other transactional costs, which may significantly affect the economic consequences of a given strategy or investment decision. This information is not intended as a recommendation to invest in any particular asset class or strategy or as a promise of future performance. There is no guarantee that any investment strategy will work under all market conditions or is suitable for all investors. Each investor should evaluate their ability to invest long term, especially during periods of downturn in the market. Investors should not substitute these materials for professional services, and should seek advice from an independent advisor before acting on any information presented. Before investing, please carefully consider your willingness to take on risk and your financial ability to afford investment losses when deciding how much individual security exposure to have in your investment portfolio.

Past performance does not guarantee future results. There is a potential for loss as well as gain in investing. Stash does not represent in any manner that the circumstances described herein will result in any particular outcome. While the data and analysis Stash uses from third party sources is believed to be reliable, Stash does not guarantee the accuracy of such information. Nothing in this article should be considered as a solicitation or offer, or recommendation, to buy or sell any particular security or investment product or to engage in any investment strategy. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. Stash does not provide personalized financial planning to investors, such as estate, tax, or retirement planning. Investment advisory services are only provided to investors who become Stash Clients pursuant to a written Advisory Agreement. For more information please visit www.stashinvest.com/disclosures.