Morgan Stanley, JPMorgan Chase, Goldman Sachs cut Facebook estimates just before IPO

“In the run-up to Facebook’s $16 billion IPO, Morgan Stanley, the lead underwriter on the deal, unexpectedly delivered some negative news to major clients: The bank’s consumer Internet analyst, Scott Devitt, was reducing his revenue forecasts for the company,” Alistair Barr reports for Reuters.

“The sudden caution very close to the huge initial public offering, and while an investor roadshow was underway, was a big shock to some, said two investors who were advised of the revised forecast,” Barr reports. “They say it may have contributed to the weak performance of Facebook shares, which sank on Monday – their second day of trading – to end 10 percent below the IPO price. The $38 per share IPO price valued Facebook at $104 billion.”

MacDailyNews Note: Facebook (FB) shares are currently down $1.71 (-5.02%‎) to $32.32.

“The change in Morgan Stanley’s estimates came on the heels of Facebook’s filing of an amended prospectus with the U.S. Securities and Exchange Commission (SEC), in which the company expressed caution about revenue growth due to a rapid shift by users to mobile devices. Mobile advertising to date is less lucrative than advertising on a desktop. ‘This was done during the roadshow – I’ve never seen that before in 10 years,’ said a source at a mutual fund firm who was among those called by Morgan Stanley,” Barr reports. “JPMorgan Chase and Goldman Sachs, which were also major underwriters on the IPO but had lesser roles than Morgan Stanley, also revised their estimates in response to Facebook’s May 9 SEC filing, according to sources familiar with the situation.”

Barr reports, “The people familiar with the revised Morgan Stanley projections said Devitt cut his revenue estimate for the current second quarter significantly, and also cut his full-year 2012 revenue forecast. Devitt’s precise estimates could not be immediately verified. ‘That deceleration freaked a lot of people out,’ said one of the investors.”

Read more in the full article here.

MacDailyNews Take: Hope poor Woz didn’t get soaked.

Related articles:
Facebook drops below IPO price in pre-market trading – May 21, 2012
Facebook stock ‘a total disaster’ in big public debut – May 18, 2012
Woz: I would invest in Facebook stock regardless of opening price; Zuckerberg like a combo of Jobs and me – May 14, 2012
Facebook co-founder renounces U.S. citizenship ahead of IPO – May 11, 2012
Facebook founder Mark Zuckerberg’s hoodie upsets analyst – May 9, 2012
Here’s why Google and Facebook might completely disappear in the next 5 years – May 1, 2012

14 Comments

  1. Disaster. Does FB even have a decent PR department? These last-minute “surprises” could have been prevented had there been: 1) full disclosure & 2) proper coordination with the underwriters & NASDAQ.

  2. This seems to possibly be on the verge of criminal.
    Revising a revenue estimate due to ‘a rapid shift to mobile devices’.
    I thought that The only person that missed the mobile revolution of 2007 (iPhone) was Ballmer,
    Virtually every media tech story that year was about iPhone.

  3. why can’t i ever read an MDN article about “Facebook”? All other articles appear fine but anything about “Facebook” is censored and I can only see these comments?!?

  4. I don’t see anything wrong here. The lead underwriter’s analyst changed his estimate of revenue, and FB issued an amended SEC filing. As a result, other investment banks like JPM and GS revised their estimates. Likewise, investors would have revised their own valuation, so the shares traded down. Seems like everything worked the way it should besides the Nasdaq glitches. The only other thing would have been to lower the offering price, but for an oversubscribed offering, why would you? Who cares if the shares are trading below the offering price? It doesn’t matter one bit.

    1. >‘This was done during the roadshow – I’ve never seen that before in 10 years,’ said a source at a mutual fund firm

      The parlor tricks that made Facebook, Facebook continued up to the last moment before going public.

      A nelson munce laugh to any and all that were so greedy as to buy into MySpace part Duex…

    2. There’s another major problem people have to link to this debacle- and it is a debacle. The fact that the underwriting banks had to buy into the stock the day of the IPO just so it didn’t sink below the IPO price. The stock was propped up artificially the second NASDAQ figured out the order flow problems- which was an amazing failure on so many levels. I can only imagine what it was like for people to have orders hanging out there worth a lot of money with no idea for hours if they bought shares or not. One guy on here said he didn’t know what happened to his market order :O. You have people out there putting in market orders! For that!? Craziness.

      I thought immediately the reason for aapl’s huge pop wasn’t just the monday after expiration F.. It was also people putting all th money back into apple they took out to participate in the FB IPO as well.

      And for them to point to their clumsiness in the mobile market as a reason for smaller earnings.. haha. no shit. their mobile app is terrible joke. and that is where everyone is going. FB is a fail before it could even start. the worst part is you just know we’ll be having to hear from zuckerberg for the rest of his life on his opinion of technology matters far long after fb is a “remember when” article in a reader’s digest.

  5. Considering the significant number of app companies Facebook has been buying up, and their plans for mobile which could easily clash with Apple’s iCloud plans, having news stories about Apple’s competitors is very much relevant to what many of us want to read.

    If you’re not interested, nothing’s forcing you to click and comment.

  6. did the general public get the news before the IPO?
    the article says it was only relayed to ‘major clients’.
    if they didn’t tell everyone (even if they fulfilled all the ‘legal’ obigations to the SEC etc) it seems kind of distateful.

    Even if they made a public release, because of the closeness to the IPO, I bet most of the small time investors didn’t get the news.

    More and more the Facebook IPO seems like a scam to fleece the small ignorant investor (facebook fans for example investing in stocks for the first time) and enrich the original financial backers.

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