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Afternoon Markets: What happens when a lock-up period expires can say a lot about a company.

罢辞诲补测鈥檚 newsletter had an interesting tidbit about and 鈥檚 stock:

鈥�Grubhub shares tanked over 43 percent following an alarming earnings report late Monday. Beyond Meat stock also had a terrible day, falling more than 22 percent. Not a coincidence: A restriction on selling stock lifted yesterday.鈥�

This afternoon we鈥檙e focused on what鈥檚 going on with Beyond Meat. What happened to GrubHub is interesting, but what鈥檚 going on with everyone鈥檚 favorite fake meat company is illustrative of something we need to keep an eye on.

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A 22 percent fall is a significant dip, one that can be at least partially attributed to Beyond Meat鈥檚 early shareholders selling their shares now that they鈥檙e allowed to. In other words, its lock-up period expired.

What Is a Lock-Up Period?

A restriction on selling stock is known as a lockup period, or a period of time during which employees, founders or other people who owned shares of the stock before it went public can鈥檛 sell those shares.

According to , lock-up periods usually last between 90 and 180 days after a company鈥檚 IPO, and they exist to prevent investors from flooding the market with lots of shares, which could make the stock鈥檚 price sink. Also, if investors immediately started selling their shares when a company goes public, the optics of that would be poor–it could look like employees and investors are cutting their losses early, and that could affect the stock price.

To be clear, lock-up periods are good in that they try to keep the market fair and prevent early disruption to a stock. But when they lift, we can learn about how insiders feel about the company in question; if they dump their stock, depressing its value, that’s a data point.

2019: The Year of the Unicorn

This year has been a landmark year for unicorns going public. We鈥檝e seen well-known startups like , , and enter the public markets. For the companies whose lock-up periods haven’t expired yet, it鈥檒l be interesting to see what happens when the trading restriction is lifted.

Take Uber for example. The company had a disappointing IPO in May, when its stock opened its first day of trading at $42 per share, lower than its IPO price of $45 per share. It closed its first day of trading at $41.57, and its stock has been a bit of a buzzkill since then–it was trading at $33.75 at the end of trading today.

Uber鈥檚 lock-up period ends on November 6. The lock-up period expiration will either cause a flood of employee and investor-owned shares hitting the market or perhaps a much-needed bump for its stock. While Uber鈥檚 stock performance hasn鈥檛 been great, it鈥檚 worth noting that Lyft shares went higher on the day its lock-up period expired, the opposite of what analysts expected, according to .

We鈥檙e interested in seeing what happens when a few other companies鈥� lock-up periods end: Peloton (March 24, 2020), SmileDirectClub (March 10, 2020), and Chewy (December 11, 2019). Check back for more.

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