As Facebook's Stock Struggles, Fingers Start Pointing
New York TimesBy MICHAEL J. DE LA MERCED, EVELYN M. RUSLI and SUSANNE CRAIG | New York Times

Wall Street is playing the Facebook blame game.

As shares of the social network tumbled in their second day of trading, bankers, investors and analysts wondered what had gone wrong with the initial public offering of Facebook, the most highly anticipated technology debut in years.

Some fingers are pointing at Morgan Stanley, the lead banker on the I.P.O., while others criticize Nasdaq and even Facebook itself. In the aftermath, critics contend that Facebook's offering price was too high and too many shares were sold to the public, hurting the stock's performance out of the gate.

Facebook's troubles could damp enthusiasm for a spate of companies set to go public in the coming months. It could also spur changes in the I.P.O. process. In particular, big institutional investors like Fidelity and Vanguard may demand greater say on pricing, at the expense of companies and their bankers.

"It's a huge disappointment," David J. Abella, a portfolio manager at Rochdale Investment Management who tried to get shares in the offering but did not get an allocation. "Investors were expecting easy money on this one."

Facebook was promoted as the next Google, a technology star primed to soar.

But the stock stumbled in its debut on Friday. A systems error at the Nasdaq, where shares of Facebook are listed, hampered trading in the first few hours. With the company hovering around its offering price of $38 a share, Morgan Stanley had to step in to help stabilize the price. Facebook shares ended the day almost at the same place they started.

While bankers may have hoped that Facebook would bounce back on Monday, unfettered by technical problems, such optimism faded as the stock sank. It tumbled 11 percent, closing at $34.03.

For Morgan Stanley, landing the Facebook public offering was one of the biggest investment banking coups in almost a decade, and a successful debut would most likely have cemented its position as the dominant force in technology I.P.O.s. But Morgan Stanley now faces questions about its role in the events surrounding Facebook.

It is an unusual situation for the bank to find itself in. In the last year, it led the biggest technology offerings, including those of LinkedIn, Groupon and Zynga. The activity has been lucrative for the firm, with the Facebook I.P.O. alone bringing in an estimated $67.8 million, according to Standard & Poor's Capital IQ.

But the firm has also gained a reputation for being guarded. A number of bankers involved in the Facebook I.P.O. and other offerings have said Morgan Stanley makes decisions with little input from other underwriters. Rivals involved in the Facebook underwriting process say that Morgan Stanley exerted an enormous amount of control over important aspects of the process, including dominating meetings with institutional shareholders.

These bankers also say that Morgan Stanley bankers and Facebook executives ignored some input about pricing. Amid rising investor demand before the I.P.O., Morgan Stanley contacted other bankers to discuss raising the offering price as high as $38 a share, up from the original estimates of $28 to $35 a share.

Some of the firms resisted, arguing that the company's fundamentals did not justify a higher valuation, according to people with knowledge of the talks. The rival bankers also worried that the outsize demand was being driven by retail investors, a more fickle constituency. But others involved in the underwriting say that Morgan Stanley and other advisers held thousands of conversations with potential investors on what was a fair level, and that the $38 price was justified.

For Morgan Stanley, one of the main goals was to avoid an enormous "pop" in the first day of trading, a sign that an offering may have been priced too low. LinkedIn, for instance, nearly doubled in its first day of trading. Generally, bankers favor a more modest rise, say 10 percent, balancing the needs of both new investors who want big gains and current insiders who do not want to leave money on the table.

"The range and the size of Facebook's offering was not increased through careful observation by Morgan Stanley and its underwriters," said Nick Zaharias an independent consultant, who advises institutional investors. "It seems like Morgan Stanley lost control of the process."

But much of the frustration with the I.P.O. process did not boil over until Friday morning. When Nasdaq started determining Facebook's opening price, the exchange's systems were quickly overwhelmed by enormous demand from investors. Trading in the company was delayed by a half-hour, to 11:30 a.m. But many trade confirmations were not sent out until at least 1:50 p.m., meaning that many investors were flying blind.

To several bankers, that was a recipe for disaster. As the lead underwriter and stabilization agent, Morgan Stanley was obligated to steady the trading in Facebook stock should it falter. The firm's traders bought an estimated 30 million to 40 million shares at $38 that day, hoping to prevent the stock from breaking below the offer price, according to people involved in the process.

That exercising of the overallotment option, known as the "green shoe" in Wall Street parlance, normally succeeds in keeping a stock from veering too far from the offer price.

But the defense mechanism is unlikely to prove effective for long, given the size of Facebook's offering and the heavy trading. Morgan Stanley had just 63 million shares to exercise. By comparison, more than more than 571 million Facebook shares changed hands on Friday and 168 million on Monday.

"It is like fighting a war with a water gun, it wasn't that effective," one banker involved in the underwriting process said.

Investors also had to digest a string of troubling news items that recently emerged. A week before its debut, Facebook revised its prospectus, highlighting the challenge of making money in mobile communications. Then, on May 15, General Motors, one of the country's largest advertisers, said it was withdrawing its $10 million Facebook ad budget.

Some institutional investors were also surprised by the size of their allocations, expecting to get far fewer shares. In the process of jockeying for I.P.O. shares, investors will typically ask for a large block, even if they expect to only receive a fraction.

"We got more shares than we expected, which spooked us," said one portfolio manager, who spoke on the condition of anonymity for fear of upsetting Facebook's underwriters. Concerned that the size of its allocation implied a lack of broad investor support, the manager sold all of the firm's Facebook's shares on Friday. "If it was truly a hot, hot deal, we would have gotten less."

Facebook's disappointing debut may not bode well for other I.P.O.'s. There are dozens of public offerings in the pipeline, according to Thomson Reuters, including some well-known names like Michaels Stores and Shutterstock, an online stock photography service.

Institutional investors like Fidelity Management, burned by Facebook's tumble, may drive a harder bargain in the future.

Still, the final story for Facebook's stock has yet to be written. Amazon.com quickly tumbled after making its public market debut in May 1997, trading well below its offer price of $18 a share for several months. A year after the I.P.O., Amazon had roughly quadrupled, and on Monday the shares closed at $218.11.

Facebook drops again as pressure to perform mounts

Investors were still shaking their heads over the botched opening trading of Facebook when Reuters reported late Monday that the consumer Internet analyst at lead underwriter Morgan Stanley cut his revenue forecasts for Facebook in the days before the offering.

JPMorgan, Chase, and Goldman Sachs, which were also underwriters on the deal, each revised its estimates during the road show as well, according to sources familiar with the situation.

One mutual fund source said they had never, in a decade of experience, seen an underwriter cut a company's outlook during the road show prior to an offering.


Trading @ $32.57 right now.

For people that don't even have a position, you sure seem to care a lot. I could give a [Bleeeeep!].

The one thing that can be said is that both Google and Facebook have absolutely revolutionized advertising. IMO, that is what makes them such unique companies. Whether or not they deserve their valuations is what makes a market.

Hitting the skids @ $31.56 now.

In the 10 reasons not to buy Faceplant stock, this one caught my eye.

General Motors Co. pulled $10 million in ads from Facebook this week. GM said the ads were "ineffective." That, of course, wouldn't normally be a big deal. Facebook had $3.7 billion in ad revenue last year.

But more companies may be inclined to follow GM. Nearly half of advertisers see the ad dollars spent on Facebook as "experimental." And Facebook's ad revenue for the first quarter was actually down 6% from the previous quarter.

By definition the offer price of $38 was over-priced and over-valued, no matter what Morgan Stanley says. If it weren't, the faith of the market would have kept it there or raised it.

More and more it seems like the big banks are both too big and should fail.

Unbelievable, especially considering the key FB demographic. Maybe if the GM ads had Bieber... or bicycles and bubblegum...
15 y.o. girls aren't intrested in new Silverados...

It is well known that business advertising on facebook leads to very little, if any at all success.

Its also why this IPO was over priced to start with.

Closed now:

FB
31.00 -3.03 -8.90%

After shooting up to $32.90 yesterday, it's dropping to $31.51 now. What's it worth?

Facebook’s stock should trade for $13.80

If I don't hear the word "Facebook" for the next 24 months, that would be entirely soon enough.

Facebook, Inc. (FB)
-NasdaqGS

28.81 Down 3.10(9.71%) 2:26PM EDT - Nasdaq Real Time Price

$27.85 right now. The Dow has lost all of the gains for 2012. 69,000 new jobs in May; unemployment back to 8.2%. Spain hitting the skids along with Greece.

Doesn't look good.

Hope and Change...WOW...

Enter the obambo utopia.
8.2 but really 14.8

I hope nobody here was actually stooopid enough to invest in it........


Facebook, Inc. (FB)
-NasdaqGS

20.00 Down 1.20(5.67%) 11:21AM EDT - Nasdaq Real Time Price


Going, going ..... gone.






















































jfc

When it gets to $5, I might a few shares.

BTDT

I think the slid started when I deleted my facebook account.

I guess tehre is not like button for Nasdaq on facebook anymore..

Like button disabled ...


Facebook, Inc. (FB)
-NasdaqGS

19.15 Down 0.72(3.62%) 12:46PM EDT