Facebook stocks nosedive, calling for SEC review
Facebook's stock continued a disappointing plummet Tuesday - falling as much as 9% in early trading - as news sank in that Morgan Stanley, the lead underwriter of the social network's IPO, had dropped a bomb on the deal before it even hit the market: The bank told major clients that it was reducing its revenue forecasts for Facebook while the company was still involved in its IPO roadshow.
The sudden caution very close to the huge IPO was a big shock to some, said two investors who were advised of the revised forecast.
They said it may have contributed to Facebook's weak performance on Monday, when the stock sank to 11% below the IPO price. The Financial Industry Regulatory Authority plans to review Morgan's move, saying that it is a "regulatory concern."
"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.
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, 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. JPMorgan Chase and Goldman Sachs, which were also major underwriters on the IPO, also changed their revenue forecasts for Facebook.
Facebook bounced back little by the end of trading Tuesday, finishing the day down 8%. The company has lost more than $17 billion in market capitalization from its IPO price.
More questions were raised yesterday about Facebook's long-term prospects when the SEC called for a review of the glitches that plagued Facebook on its opening day Friday. The problems caused a 30-minute delay in Facebook's official premiere, and many traders were not able to tell whether their trades had been executed.
"I think there is a lot of reason to have confidence in our markets and in the integrity of how they operate," said SEC Chairman Mary Schapiro, "but there are issues that we need to look at specifically with respect to Facebook."