Are Facebook bankers backers or backstabbers?
What's the measure of Facebook's IPO? MBAOnline sent us a couple of infographics explaining just that (see them below the fold). But I must qualify that they don't take into account downward trends and some nasty behind-the-scenes backstabbing. Late yesterday, writing for Reuters, Alistair Barr reports that ahead of Facebook's Friday IPO, lead underwriter Morgan Stanley reduced revenue forecasts during the roadshow promoting the public offering. JPMorgan Chase and Goldman Sachs did similarly.
Fallen dot-com stock analyst and risen tech news publisher Henry Blodget adds perspective. "This by itself is highly unusual (I've never seen it during 20 years in and around the tech IPO business)", he observes. "But, just as important, news of the estimate cut was passed on only to a handful of big investor clients, not everyone else who was considering an investment in Facebook". Uh-oh, selective disclosure violates SEC rules.
"Any investor considering an investment in Facebook would consider an estimate cut from the underwriters' analysts 'material information'", Blodget explains. "In other words, during the marketing of the Facebook IPO, investors who did not hear about these underwriter estimate cuts were placed at a meaningful and unfair information disadvantage. They did not know what a lot of other investors knew, and they suffered for it...The SEC should investigate this immediately".
The back-door revenue cuts followed an amendment to Facebook's IPO prospectus and may also have contributed to the market's somewhat cool reception. Facebook shares fell 10 percent yesterday, the first full-day of trading. On Friday, newly-minted Facebook shares closed pennies above the $38 offering price. The stock closed at $34.03 yesterday and is down 4.44 percent to $32.52 in mid-day trading today.
But before the stock's two-day fall, Robert X. Cringely put the IPO in meaningful perspective. "If you are an investment banker, you want IPO shares to go up on their first day, rising in price by at least 10 percent though no more than 20 percent. This shows the IPO is hot, the company is booming", he says. "If you are an IPO company founder and, even more explicitly, you are Facebook CEO Mark Zuckerberg, you want your share price on the first day to go exactly nowhere, which is what Facebook’s did. That means no money was left on the table and the company got the best possible deal".
But if that's true, what were Facebook's lead investment bankers thinking? Surely we'll know soon enough. Update, May 23: Since I posted yesterday,this story exploded. See Business Insider and Wall Street Journal for riveting followups. On Wednesday, investors filed a lawsuit over the IPO.
If you've read this far, your reward -- the two aforementioned infographics -- follows the top-image photo credit.
Photo Credit: Guillaume Paumier
