This isn't going to be a popular thing to say, but it needs to be said. So here goes...
All this whining and umbrage about Facebook's IPO is ridiculous.
When are people who voluntarily speculate on stocks finally going to take responsibility for their decisions?
Never, apparently.
On Thursday, Facebook priced its IPO at $38.
On Friday, the stock opened at $42, a 10% jump, and spent most of the day trading above $40. Then, thanks to heavy support from the company's bankers, the stock closed just above $38.
In other words, even after the sharp selling at end of the day, Facebook IPO buyers were better off than they had been the day before. And if they were among those who took the abundant opportunity throughout the day to sell stock above $40, they locked in a nice overnight gain.
But to hear people bitch, you'd think they'd been swindled out of their life savings.
The New York Post captured the prevailing sentiment perfectly:
ZUCKERS!
They were Mark Zuckerberg’s cash cows.
Hordes of everyday New Yorkers played the fool yesterday to Wall Street fat cats and Facebook insiders, who used a bloated stock price to milk them of billions of dollars during an overhyped IPO.
With a $38-a-share price tag and forecasts for a 10 percent jump, mom-and-pop investors blindly bought in with dreams of instant riches that never came true.
Meanwhile, the social network’s hoodie-wearing CEO finished the day with a net worth of $19.25 billion. The average Facebook employee saw their on-paper wealth shoot up to $2.9 million.
Wow, sounds horrible.
And what happened, exactly?
Apparently, IPO buyers got less free money than they expected to.
The hope, presumably, was that--no matter where Facebook's IPO priced--the enormous demand from suckers would cause the stock to "pop" when it started trading--thus allowing the shrewd IPO buyers to flip their shares at a profit only hours after buying them.
Of course, that's exactly what the IPO buyers were given a chance to do. For about 4 hours yesterday, the IPO buyers could have locked in an instant 5%-10% gain. But apparently this wasn't the 50%+ gain they were looking for.
Well, it's time for people to grow up.
The $38 that Facebook IPO buyers voluntarily paid for the stock--emphasis on voluntarily--was already an extremely rich price for a company with decelerating revenue and only ~$0.35 of earnings last year. The only way these buyers were going to get a big "pop" from that price was if other investors seeking the same instant riches were even more aggressive and reckless than they were.
And it turned out that those even-more-aggressive-and-reckless traders stayed home.
So Facebook IPO buyers only got their 10% instant gain.
And a lot of them, apparently, did not take the opportunity to lock in that gain. Instead, they held on to the stock, either hoping that it would trade higher (likely), or because they are actually long-term investors.
And now, with the stock looking as though it will crash through the underwriters' support and the IPO price on Monday, the IPO buyers are blaming their decision to hold onto it on Facebook, too.
So, what exactly were you looking for, folks?
Even more free money?
Just for pressing "buy"?
In what other normal universe would you ever expect that?
Facebook could not have been clearer about how it was going to emphasize the long-term at the expense of the short-term, and that's exactly what it did in choosing its IPO price. Facebook now has a lot more cash at its disposal than it would have if it had lowballed the IPO just to give buyers a "pop." That cash is valuable to the company, and it will help the company create more value over the long-term.
In the weeks leading up to the IPO, moreover, many analysts screamed from the rooftops that Facebook's stock seemed extremely expensive. We even went to far as to call it "muppet bait."
And when the stock opened on Friday at merely an extremely expensive price, instead of a ludicrous one, we were relieved. Because it meant that millions of investors weren't buying it at absurd prices in the after-market... and thereby setting themselves up to get creamed when the hype faded.
But apparently those who did buy the IPO were expecting to get something for nothing. (And not just "something." They were expecting to get a lot for nothing.)
And when they didn't, they started taking their frustrations out on Facebook.
Trading stocks is a risky business. Perhaps it's time for those who voluntarily choose to do it to acknowledge that.


Read more: http://www.businessinsider.com/sorry...#ixzz1vWjKX5Ff

(Reuters) - 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.

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.

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.

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.

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.

Morgan Stanley declined to comment and Devitt did not return a phone message seeking comment. JPMorgan and Goldman both declined to comment.

Typically, the underwriter of an IPO wants to paint as positive a picture as possible for prospective investors. Investment bank analysts, on the other hand, are required to operate independently of the bankers and salesmen who are marketing stocks - that was stipulated in a settlement by major banks with regulators following a scandal over tainted stock research during the dotcom boom.

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.

Scott Sweet, senior managing partner at the research firm IPO Boutique, said he was also aware of the reduced estimates.

"They definitely lowered their numbers and there was some concern about that," he said. "My biggest hedge fund client told me they lowered their numbers right around mid-roadshow."

That client, he said, still bought the issue but "flipped his IPO allocation and went short on the first day."

"VERY UNUSUAL"

Sweet said analysts at firms that are not underwriting IPOs often change forecasts at such times. However, he said it is unusual for analysts at lead underwriters to make such changes so close to the IPO.

"That would be very, very unusual for a book runner to do that," he said.

The lower revenue projection came shortly before the IPO was priced at $38 a share, the high end of an already upwardly revised projected range of $34-$38, and before Facebook increased the number of shares being sold by 25 percent.

The much-anticipated IPO has performed far below expectations, with the shares barely staying above the $38 offer price on their Friday debut and then plunging on Monday.

Companies do not make their own financial forecasts prior to an IPO, and underwriters are generally barred from issuing recommendations on the stock until 40 days after it begins trading. Analysts often rely on guidance from the company in building their forecasts, but companies doing IPOs are not permitted to give out material information that is not available to all investors.

Institutions and major clients generally enjoy quick access to investment bank research, while retail clients in many cases only get it later. It is unclear whether Morgan Stanley only told its top clients about the revised view or spread the word more broadly. The firm declined to comment when asked who was told about the research.

"It's very rare to cut forecasts in the middle of the IPO process," said an official with a hedge fund firm who received a call from Morgan Stanley about the revision.

(Editing by Jonathan Weber, Martin Howell and Ian Geoghegan)

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 the 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 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.

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 and Goldman Sachs 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.”

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.

It's likely that news of these estimate cuts dampened interest in the IPO among those who heard about them.

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.

Company filings after the market closed on Friday night however revealed the extent to which the banks who led Facebook’s initial public offering - in which $16bn of shares were sold to new investors - were forced to move in to the market and buy shares in order to keep the price above the $38 level.

Morgan Stanley, Facebook’s lead financial adviser, ended the day with 162m shares, worth $6.16bn. Other banks including JP Morgan and Goldman Sachs also bought shares, ending the day with $3.2bn and $2.4bn holdings respectively.