Despite months of hype, Facebook's stock debut was more of a whimper than a bang and fraught with difficulties and the news that Morgan Stanley secretly cut revenue forecasts just before.
Despite months of hype, Facebook’s stock debut was more of a whimper than a bang and fraught with difficulties. Although the stock closed Friday, its first day on the market, up just 23 cents, it has been on a downward slide ever since and now information is coming out that Morgan Stanley surreptitiously cut Facebook’s forecast just before.
On Monday the shares fell 11% and closed at $34.03, well below its initial $38 price for the IPO. On Tuesday the slide continued as the stock opened at $32.59 and closed down at $31. So what happened?
There was speculation that the technology problems the Nasdaq experienced had to do with Facebook’s fizzle. When the shares debuted, the Nasdaq didn’t print the first trade for almost half an hour. Although the stock opened at $42 a share, this issue sent the price back down to the original $38. Then Nasdaq had problems confirming trades and cancellations until the middle of the afternoon.
Nasdaq OMX Group Inc. Chief Executive Officer Bob Greifeld reminded angry investors that Facebook’s IPO valuation was the largest ever and the initial trade was the biggest that the Nasdaq had ever handled.
Wall Street Journal
According to the , part of the reason for the selloff of Facebook’s stock came because “some investors who were allotted more Facebook shares than they expected moved to pare their holdings.”
Morgan Stanley, the lead underwriter in the deal, apparently reduced revenue forecasts for Facebook, but only passed the information on to a handful of major clients, according to Reuters. The new forecasts, from the bank’s consumer Internet analyst, Scott Devitt, cut estimated revenue in the second quarter significantly, as well as full-year 2012 revenue estimates.
Business Insider detailed just what was so concerning about the news that Morgan Stanley had only disseminated the forecasted revenue cut to select individuals. The biggest problem is that it is considered material information when the lead underwriter cut the estimate. Selectively disseminating this new information could violate securities laws and lead to an SEC investigation.
All of those issues combined to crush Facebook in the first few days of its trading as investors grew wary. But how low is too low before buying Facebook stock starts being undesirable? In an interview with Yahoo! Finance, Todd Schoenberger of the BlackBay Group said that if Facebook drops below $30 he would admit defeat.