Wow. Who would have thought that one of the largest IPOs in history would turn to be so ugly and dirty… It was suppose to be a big celebration of both the technological and the financial worlds as the social networking giant Facebook going public. Oh, how quickly the tables have turned.
After Facebook’s first day in the wild closed at the initial $38 opening price for a share and the drop on the next few days (right now the price is around $32-$33), all the hidden shit is now beginning to surface and fingers are pointing out everywhere.
Not Disclosing Weaker Projections
The mess begins before the actual IPO on May 18th. As Business Insider revealed, some Facebook’s top executive disclosed to the company’s major underwriter analysts that the company is struggling with a weaker predicted revenue than expected. In other words, Facebook will make less money than its prior projections suggested.
Following this disclosure, those underwriters (Morgan Stanley, Goldman Sachs, JPMorgan and Bank of America) have indeed cut the financial future estimation BEFORE the IPO. And as Reuters later discovered, the reduction was meaningful and could certainly affected the decisions of potential investors.
The problem was that almost nobody knew about this. This information was only shared by the underwriters with a few institutional investors while most of the “average Joe” investors knew nothing about it. Facebook neither disclosed it on its many amendments to the IPO documents.
Not only that, but just a few days before the public offering Facebook decided to raise the share price range and to offer additional shares to the public to answer the high demand. This high demand may have been reduced if the weaker projections would have reached to the public eyes.
It is important to note that the drop in Facebook’s share price doesn’t necessarily relates to this information. The fall already started before the weak projections have been leaked and it could be related to the fact that many early investors simply sold their shares to realize some of their profits.
Getting Sued, Considering a Switch To NYSE
The response from frustrated investors to these irregularities arrived shortly after Facebook’s share began sinking. A lawsuit against Facebook, Mark Zuckerberg and the leading underwriters has been filed yesterday in Manhattan federal court.
The lawsuit is accusing the defendants that they have concealed valuable information about the shrinking growth in revenue forecasts of the company as a result of a mass shift of users to mobile devices, in which the company is known to have problems generating revenue.
As a response to this suit Facebook spokesperson released the following statement: “We believe the lawsuit is without merit and will defend ourselves vigorously.” So it seems that Facebook is heading for another round in federal court.
In other financial-related news to Facebook, Bloomberg is citing a source which saying that Facebook is flirting with the NYSE Euronext after the trading delay on the first day Facebook was out on the Nasdaq, due to system failure to deal with the huge initial demand.
It would be very unusual if Facebook will do the switch such a short period of time after the listings but yet again, this whole IPO was very unusual all along…