During the final stages of launch of the $16 billion Facebook IPO, Morgan Stanley, the lead underwriter on the deal, came out with a rather unexpected bit of negative news. The bank's consumer internet analyst, Scott Devitt, was cutting down his revenue forecasts for the company. The sudden caution at around the 11th hour of the social network's initial public offer, even as an investor road show was under way, came as a big shock to some, who were advised according to two such investors quoted by Reuters.
They said it might have contributed to the weak performance of Facebook shares that sank on Monday and Tuesday - their second and third days of trading to less than 18 per cent below the IPO price.
The $38-per-share IPO price valued Facebook at $104 billion. While institutions and major clients generally get quicker access to such research, retail clients often get it later. It is not clear whether only top clients were privy to the revised view or whether it was shared more widely.
The company has not yet commented on the sharing of the research. The change in Morgan Stanley's estimates closely followed a 9 May Facebook filing of an amended prospectus with the US Securities and Exchange Commission, in which it expressed caution about revenue growth due to a rapid shift by users to mobile devices. However, what is intriguing is that mobile advertising was seen to be less lucrative than advertising on desktops till date.
According to a source quoted by Reuters who was among those called by Morgan Stanley, the revised views came during the road show and he had never seen anything like that before in 10 years.
JPMorgan Chase and Goldman Sachs, which were also major underwriters on the IPO but had lesser roles than Morgan Stanley, also came out with revised estimates in response to Facebook's SEC filing, Reuters quoted sources familiar with the situation as saying.