Et tu, Brute? Facebook Got Caesared
Facebook (NASDAQ:FB) fell again in Tuesday trading, just as it did Monday, on what was just its second day of trading after the initial public offering. Several reasons have been given to explain why investor interest cooled down so rapidly in what had been predicted to be the most popular stock in recent months. But now it looks like the Nasdaq fiasco or the inflated opening price may only have been minor factors. According to reports, it was actually the company’s main underwriter that lost confidence in Facebook’s profitability, and that, as one investor put it, “freaked a lot of people out.”
According to Reuters, in the run-up to Facebook’s IPO, Morgan Stanley (NYSE:MS) told its big clients that the bank’s consumer Internet analyst, Scott Devitt, was significantly reducing his revenue forecasts for the social network. The reduction, which came during the company’s super-hit road show, was a big shock to investors.
“This was done during the roadshow – I’ve never seen that before in 10 years,” a source at a mutual fund firm among those called by Morgan Stanley told Reuters.
The change in Morgan Stanley’s estimates came after Facebook’s filing with the U.S. Securities and Exchange Commission that expressed caution over its revenue growth due, especially in the mobile arena. JPMorgan Chase (NYSE:JPM) and Goldman Sachs (NYSE:GS) also revised their estimates.
Devitt reportedly cut his revenue estimate for the current quarter as well as the full year, though his exact figures are not known.
“They definitely lowered their numbers and there was some concern about that,” IPO Boutique’s Scott Sweet told Reuters. His client, he said, still bought the issue but “flipped his IPO allocation and went short on the first day.”
Facebook’s underwriters had priced the IPO at $38 a share, the highest end of a range that had already been revised once. The company also increased the number of shares it was selling by 25 percent. Friday saw shares stay barely above the base offer price, and then on Monday, they ended 10 percent below the IPO price. On Tuesday, shares closed at $33 per share, fading another 8.9% out of favor with investors.