9 ms·

Facebook Bankers Secretly Cut FB Revenue Estimates In Middle Of IPO Roadshow

217 points by larrys 14y ago

mikeryan 14y ago
So if I'm getting the timing right, in the week leading up to the IPO, they were just about simultaneously dropping their revenue forecasts while boosting the initial offer price? This whole thing just leaves me with a bad taste in my mouth.
- JumpCrisscross 14y ago
  There is no singular "they". The equity research analyst, noting the S-1/A revenue forecast amendments by FB, downgraded the stock. The bankers, noting that the issue was 25 times oversubscribed in Asia alone, saw demand outstripping supply. May the bankers have gotten overzealous? Yes, probably. But we're saying this with the benefit of hindsight. Remember that Morgan Stanley walked into this deal still burning from LNKD popping 90% on its IPO - after the underwriting syndicate had already raised the price by 30% on strong demand [1]. [1] http://articles.businessinsider.com/2011-05-19/tech/30001969_1_linkedin-ipo-ipo-price-morgan-stanley http://articles.businessinsider.com/2011-05-19/tech/30001969...
maybird 14y ago
I really don't want to mentally lump Facebook with Groupon. I hope we hear an official statement about this from Facebook.
- itsmequinn 14y ago
  I think it's one thing for the bank handling the IPO to cut revenue estimates and another thing to have to restate actual earnings because of a material weakness in your accounting practices. Granted, this is a bit shady, but bankers are a bit shady. A company that is shady with their earnings is what would be really worrying.
- samstave 14y ago
  It is a safe bet to group them. Given that we know that zynga constitutes 12% of their revenue, and zynga is useless - unless they charge for privacy, or other features - social networks will always simply be an ad platform and that, while still profitable, is not something eternally sustainable.
  - Drbble 14y ago
    Google makes good money as an ad platform.
- nknight 14y ago
  You don't need to. Groupon's business model was ridiculous from the beginning, and they actively engaged in attempts to manipulate their earnings numbers. Facebook's model is fundamentally unremarkable and quite similar to a number of other profitable companies. You can question the strategy and execution, but the general model is known to work. Here questions are being presented about how forecasts were handled in the run-up to the IPO. Based on what we know/suspect, the underwriters would necessarily be implicated in any actual wrongdoing, but there is thus far little evidence to suggest Facebook made any sort of Groupon-like manipulation or coverup attempt. It can and should be investigated, but we're a long way from torches and pitchforks on Zuckerberg's front lawn.
Centigonal 14y ago
"The SEC should investigate this immediately." Ha, funny!
- goatforce5 14y ago
  The author of the article, Henry Blodget, was investigated and fined and banned from working in the finance industry by the SEC. http://en.wikipedia.org/wiki/Henry_Blodget http://en.wikipedia.org/wiki/Henry_Blodget He probably doesn't agree with the prevailing (?) wisdom that the SEC is toothless.
  - Centigonal 14y ago
    Oh, wow. I was not aware of that. Thanks!
  - Centigonal 14y ago
    Oh, wow. I was not aware of that. Thanks!
guelo 14y ago
It is not possible to trust Wall Street, the whole thing is built on insider trading. They call customers that are not on the inside "dumb money" and unashamedly try to figure out how to take their money.
- vijayr 14y ago
  Is it this bad in Europe and Asia? or just in the US? Almost every day we hear banks doing this, banks doing that - most of it is unethical, and many of it probably illegal, yet nothing seems to be happening to them. This is depressing.
  - spydum 14y ago
    Ethics and legality don't always align. You will always find people who are willing to push the ethical line a bit further out to satisfy their greed. Then of course, it's not too much further to meander across that legal line as well. What can government/regulators do? If they respond harshly and abruptly, they are criticized as being too heavy handed, and enemies of capitalism. If they respond slowly and deliberately, they are called slow and ineffective.
    - Drbble 14y ago
      Paraphrasing: If government does the right thing, criminals hate them, and if they do the wrong thing, victims hate them. What can they do, indeed?
  - rmc 14y ago
    I assure you European banks are just as corrupt as American banks.
  - pwaring 14y ago
    Insider trading (and the wider 'market abuse') can be extremely difficult to prove. The FSA fines a handful of people each year, and prosecutes even fewer. If firms chose not to trade, when they otherwise would have done (which seems to be the case here), based on insider information, that is nigh on impossible to prove.
larrys 14y ago
And the domain "facebooksuit.com" was just registered: Domain Name: FACEBOOKSUIT.COM Registrar: GODADDY.COM, LLC Whois Server: whois.godaddy.com Referral URL: http://registrar.godaddy.com Name Server: NS05.DOMAINCONTROL.COM Name Server: NS06.DOMAINCONTROL.COM Status: clientDeleteProhibited Status: clientRenewProhibited Status: clientTransferProhibited Status: clientUpdateProhibited Updated Date: 22-may-2012 Creation Date: 22-may-2012 Expiration Date: 22-may-2014
- drsintoma 14y ago
  godaddy? really?
  - larrys 14y ago
    For anyone interested the actual time registered was: 2012-05-22T14:52:09.0000Z That's UTC time. So it was 10:52 EDT (NY Time). This info is only available to registrars (I have no affiliation with godaddy but have access by way of another registrar to this and other info).
  - jgroome 14y ago
    Problem? They're cheap and easy. I imagine you're disappointed because they're not too highly regarded in the tech industry, but honestly you shouldn't expect your personal political beliefs to be held by everybody else.
    - drsintoma 14y ago
      They might be cheap, but they are far from easy, I would actually qualify it as the most painful purchase process I've ever experienced (my former employer had domains there). And my political beliefs had nothing to do here, technological beliefs at most. Anyway, Godaddy is where I would expect my father to buy a domain, not someone at HN. Hence my surprise. But turns out the op didn't register the domain himself, he was just pointing it out.
- uptown 14y ago
  It'll be ironic when that domain owner is sued for trademark infringement.
deleted 14y ago
[deleted]
- freehunter 14y ago
  Says Reuters. Yahoo just reprints articles from the big news sources, such as Reuters and the AP. Word for word. http://www.reuters.com/article/2012/05/22/us-facebook-forecasts-idUSBRE84L06920120522 http://www.reuters.com/article/2012/05/22/us-facebook-foreca...
  - larrys 14y ago
    "Yahoo just reprints articles from the big news sources" ?? It is an article by Henry Blodget. Love him or hate him his opinion about this certainly means something (regardless of his past).
    - freehunter 14y ago
      Yes, it's an opinion article about a real news story from Reuters. It's not Yahoo making up the news.
- mcantelon 14y ago
  The guy on the right in the video, who calls the IPO the "ultimate muppet-bait IPO", is Henry Blodget, the CEO of Business Insider.
tbundy 14y ago
Not saying it's not true, but would be nice if there was more than an anonymous source to back this up. Unless I missed something.
- stanleydrew 14y ago
  Here's the Reuters report, which has more detail: http://www.reuters.com/assets/print?aid=USBRE84L06920120522 http://www.reuters.com/assets/print?aid=USBRE84L06920120522
- freehunter 14y ago
  Yahoo says that Reuters has the information. Reuters says the information was delivered by Scott Devitt, Internet analyst for JP Morgan. Scott Sweet, senior managing partner at the research firm IPO Boutique, backed up the story. It was also confirmed by "an official with a hedge fund firm who received a call from Morgan Stanley about the revision." http://www.reuters.com/article/2012/05/22/us-facebook-forecasts-idUSBRE84L06920120522 http://www.reuters.com/article/2012/05/22/us-facebook-foreca...
  - tbundy 14y ago
    Ah, I hadn't seen the Scott Sweet quote. Thanks.
tomgallard 14y ago
I'm a bit confused about this. I distinctly remember the news about the earnings warning (due to difficulty of monetizing mobile users) coming out before the IPO. So there can be no complaint there. The article suggests that the problem is that the banks underwriting the IPO cut their own estimates for Facebook's earnings based on this warning, and then didn't share it with the general public. Surely this is nothing out of the ordinary- lots of banks/brokers/financial institutions produce research/notes on shares which are only distributed to major clients.
- mrcapers 14y ago
  exactly. the biggest issue is the suspicion of FB giving more material, informational color on rev. growth to the analyst(s) than to the public.
JumpCrisscross 14y ago
The original Reuters article does a better job explaining this than the link-bait title here: http://www.reuters.com/assets/print?aid=USBRE84L06920120522 http://www.reuters.com/assets/print?aid=USBRE84L06920120522 FB amended their S-1 to lower revenue forecasts. Following that, a research analyst at Morgan Stanley cut his revenue forecast on FB close to their IPO. Nothing here should fire anyone up. Equity research must be conducted independently of the investment bankers' non-public information. Given that they are opinions assembled from public data I don't see how disclosing it only to clients is a problem. If you want to publish a newsletter with stock tips and only disclose it to paying clients that is your prerogative, too.
- cube13 14y ago
  >A research analyst at Morgan Stanley cut his revenue forecast on FB close to their IPO. Following that, FB amended their S-1 to lower revenue forecasts. The latter may have been informed by the former but it cannot be said that the former was influenced by the latter without more information. It was the opposite. Facebook filed the amended S-1, and Morgan Stanley, JPMorgan Chase, and Goldman Sachs changed their forecast. From the Reuters article: >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.
  - tomgallard 14y ago
    So Facebook expressed caution about revenue growth, and the banks downgraded their earnings forecast? I really don't see what the story is here! In fact the WSJ suggests that if they had released these revised earnings forecasts publicly, they'd have been breaking SEC regulations: Underwriters are barred by Securities and Exchange Commission rules from publicly issuing research on the IPOs they are involved in. But analysts are allowed to discuss their views with clients during these so-called road shows.
    - deleted 14y ago
chernevik 14y ago
The bankers surely know how disastrous something like this would be. Facebook has been aggressively indifferent to this whole process, which involves a lot of complexity both in decision making and communication. "Don't make the analysts look bad" is an important rule, but one that's easy to miss unless you spend some time thinking through your communications with the market. If FB's initial analyst communications emphasized optimism over credibility and deliverability, or FB was impatient with questions casting doubt, the analysts may have had reason to start with high estimates. The May 9 filing comes out and reveals those to be implausible, and they have to dial back to avoid looking silly or as if they're pumping the stock. If FB management hadn't spent a lot of time thinking about the relationships between the analysts and the investors, they may have missed the point that those investors are the analysts' ultimate clients. If they didn't spend much time with the analysts, they may have neglected building relationships where they could subtly signal issues without tripping regulatory problems. Or the analysts were idiots and screwed up the biggest assignments of their lives. Is all this shady company / banker / investor communication good? No, but this is how it's done right now, and if you want your partners to do well you have to work within the rules of the road. It isn't clear to me that Facebook took the time to do that.
- deleted 14y ago
  [deleted]
- lmm 14y ago
  Does facebook actually lose anything? It sounds like they walked away with the maximum amount of money possible; the bankers might be upset, and I can see that might make it harder for facebook to raise money in the future, but they're unlikely to need to for a while yet.
  - chernevik 14y ago
    Well such a mistake would it hurt their ability to communicate with the analysts and the markets. They'd have less credibility and would have a harder time explaining anything tricky. They may hear less about what investors do and don't think and what drives the stock's movements. Over time those communication gaps can lead to more volatility in the stock and perhaps lower levels. That may not matter to Facebook until it needs capital. But it will matter to early investors and employees holding stock they'd like to liquidate. Some of those players may have such returns they don't care, but not all of them are so fortunate and in general it's a missed maximization. How important all of that is depends on what FB wants to do and be. More broadly, public markets are an important constituency, if those investors don't trust you that's going to influence your reputation in the media and with the government.
Irishsteve 14y ago
Facebook : The biggest tech IPO ever. Also possibly the most controversial tech IPO ever. It's down another 3% (On top of 10%). Irregularities popping out left right and centre. Not to mention companies being very public about discontinuing advertising with them. Someone hates Facebook.
horsehead 14y ago
I can't help but feel Facebook is on the way out. Probably not any time soon. But there is just a huge movement of people waiting for a good reason to leave. Perhaps the debacle that was the company's IPO will start the chain reaction that will end in Facebook going the way of MySpace, et al.
loverobots 14y ago
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. This makes zero sense. Aren't research analysts supposed to be separate from investment bankers? If so why is this odd. MS should not be able to tell its analysts to tone down a report or time it just because...
rorrr 14y ago
At current P/E of 104 and earnings per share of $0.31, this stock can only go down. There's no reasonable justification that FB will start making 5X money any time soon. Current fair price: $6
thereason 14y ago
I'm loving this sequence of events just for opportunity to see the cognitive dissonance of some HN commenters in action. The FB IPO strategy was to wait for the peak (or "plateau", if you prefer) in their growth, collect money from the public and then, for the insiders, quickly cash out. As for why they wanted to collect money from the public through an IPO, we can call it greed, but truthfully it was also the logical thing to do for the company. They knew were not going to grow revenues any further from the Facebook "business model". Revenues would slowly decline going forward. The novelty factor would disappear and advertisers would learn. But with an IPO they could bring in many years worth of revenue, by selling worthless shares to gullible investors, and extend the life of "Facebook Corporation". As long as Facebook has cash, they can stay "in the game". Like Microsoft, they do not need to innovate, they can just acquire or copy new players as they come along. They just sit and wait for the competition to arise, then quickly snuff it out, with cash. New ideas and innovation are what can kill a company like Facebook (or Yahoo, or Microsoft, or so many others). The way you stay in the game is by having the cash to purchase the work of the innovators who would otherwise render your business obsolete.
- tatsuke95 14y ago
  I can't help but be disturbed that you've lumped Microsoft in with Facebook and Yahoo...twice. Microsoft is one of the biggest companies in the world, makes a wide variety of products, both physical and digital, did $17BB in revenue in the first quarter of 2012, and has been a public company for over 25 years, returning massive value to its investors. So what do they have in common?
  - deleted 14y ago
    [deleted]
  - jacquesm 14y ago
    That new ideas and innovation can kill them. Likely in the case of microsoft it will cause them to change, along the lines of how microsoft forced IBM to change.
    - deleted 14y ago
mratzloff 14y ago
Possible securities fraud? I predict no one is punished and bonuses all around!
sparknlaunch12 14y ago
No surprises here. I always cringe when I see 'mum and dad' flotations. These type of deals are always plagued with bias, mostly in the favour of the big guys. The poor retail investors get sucked in by the allure of holding a brand name or having boasting rights. This thinking is dangerous when making an investment. I doubt most people would throw $1000 on a sports bet but quite happily to throw in more on buying a 'big name'.
- Drbble 14y ago
  Some people read the sports pages, some people read the business pages, but they are reading the same paper and they aren't so different from each other.
- tedunangst 14y ago
  Sports bets are binary win or lose propositions. You can mostly control the amount of money you are willing to lose on a stock bet.

217 points by larrys 14y ago

So if I'm getting the timing right, in the week leading up to the IPO, they were just about simultaneously dropping their revenue forecasts while boosting the initial offer price? This whole thing just leaves me with a bad taste in my mouth.

JumpCrisscross 14y ago
There is no singular "they". The equity research analyst, noting the S-1/A revenue forecast amendments by FB, downgraded the stock. The bankers, noting that the issue was 25 times oversubscribed in Asia alone, saw demand outstripping supply. May the bankers have gotten overzealous? Yes, probably. But we're saying this with the benefit of hindsight. Remember that Morgan Stanley walked into this deal still burning from LNKD popping 90% on its IPO - after the underwriting syndicate had already raised the price by 30% on strong demand [1]. [1] http://articles.businessinsider.com/2011-05-19/tech/30001969_1_linkedin-ipo-ipo-price-morgan-stanley http://articles.businessinsider.com/2011-05-19/tech/30001969...

maybird 14y ago

I really don't want to mentally lump Facebook with Groupon. I hope we hear an official statement about this from Facebook.

itsmequinn 14y ago
I think it's one thing for the bank handling the IPO to cut revenue estimates and another thing to have to restate actual earnings because of a material weakness in your accounting practices. Granted, this is a bit shady, but bankers are a bit shady. A company that is shady with their earnings is what would be really worrying.
samstave 14y ago
It is a safe bet to group them. Given that we know that zynga constitutes 12% of their revenue, and zynga is useless - unless they charge for privacy, or other features - social networks will always simply be an ad platform and that, while still profitable, is not something eternally sustainable.
- Drbble 14y ago
  Google makes good money as an ad platform.
nknight 14y ago
You don't need to. Groupon's business model was ridiculous from the beginning, and they actively engaged in attempts to manipulate their earnings numbers. Facebook's model is fundamentally unremarkable and quite similar to a number of other profitable companies. You can question the strategy and execution, but the general model is known to work. Here questions are being presented about how forecasts were handled in the run-up to the IPO. Based on what we know/suspect, the underwriters would necessarily be implicated in any actual wrongdoing, but there is thus far little evidence to suggest Facebook made any sort of Groupon-like manipulation or coverup attempt. It can and should be investigated, but we're a long way from torches and pitchforks on Zuckerberg's front lawn.

Centigonal 14y ago

"The SEC should investigate this immediately." Ha, funny!

goatforce5 14y ago
The author of the article, Henry Blodget, was investigated and fined and banned from working in the finance industry by the SEC. http://en.wikipedia.org/wiki/Henry_Blodget http://en.wikipedia.org/wiki/Henry_Blodget He probably doesn't agree with the prevailing (?) wisdom that the SEC is toothless.
- Centigonal 14y ago
  Oh, wow. I was not aware of that. Thanks!
- Centigonal 14y ago
  Oh, wow. I was not aware of that. Thanks!

guelo 14y ago

It is not possible to trust Wall Street, the whole thing is built on insider trading. They call customers that are not on the inside "dumb money" and unashamedly try to figure out how to take their money.

vijayr 14y ago
Is it this bad in Europe and Asia? or just in the US? Almost every day we hear banks doing this, banks doing that - most of it is unethical, and many of it probably illegal, yet nothing seems to be happening to them. This is depressing.
- spydum 14y ago
  Ethics and legality don't always align. You will always find people who are willing to push the ethical line a bit further out to satisfy their greed. Then of course, it's not too much further to meander across that legal line as well. What can government/regulators do? If they respond harshly and abruptly, they are criticized as being too heavy handed, and enemies of capitalism. If they respond slowly and deliberately, they are called slow and ineffective.
  - Drbble 14y ago
    Paraphrasing: If government does the right thing, criminals hate them, and if they do the wrong thing, victims hate them. What can they do, indeed?
- rmc 14y ago
  I assure you European banks are just as corrupt as American banks.
- pwaring 14y ago
  Insider trading (and the wider 'market abuse') can be extremely difficult to prove. The FSA fines a handful of people each year, and prosecutes even fewer. If firms chose not to trade, when they otherwise would have done (which seems to be the case here), based on insider information, that is nigh on impossible to prove.

larrys 14y ago

And the domain "facebooksuit.com" was just registered: Domain Name: FACEBOOKSUIT.COM Registrar: GODADDY.COM, LLC Whois Server: whois.godaddy.com Referral URL: http://registrar.godaddy.com Name Server: NS05.DOMAINCONTROL.COM Name Server: NS06.DOMAINCONTROL.COM Status: clientDeleteProhibited Status: clientRenewProhibited Status: clientTransferProhibited Status: clientUpdateProhibited Updated Date: 22-may-2012 Creation Date: 22-may-2012 Expiration Date: 22-may-2014

drsintoma 14y ago
godaddy? really?
- larrys 14y ago
  For anyone interested the actual time registered was: 2012-05-22T14:52:09.0000Z That's UTC time. So it was 10:52 EDT (NY Time). This info is only available to registrars (I have no affiliation with godaddy but have access by way of another registrar to this and other info).
- jgroome 14y ago
  Problem? They're cheap and easy. I imagine you're disappointed because they're not too highly regarded in the tech industry, but honestly you shouldn't expect your personal political beliefs to be held by everybody else.
  - drsintoma 14y ago
    They might be cheap, but they are far from easy, I would actually qualify it as the most painful purchase process I've ever experienced (my former employer had domains there). And my political beliefs had nothing to do here, technological beliefs at most. Anyway, Godaddy is where I would expect my father to buy a domain, not someone at HN. Hence my surprise. But turns out the op didn't register the domain himself, he was just pointing it out.
uptown 14y ago
It'll be ironic when that domain owner is sued for trademark infringement.

deleted 14y ago

[deleted]

freehunter 14y ago
Says Reuters. Yahoo just reprints articles from the big news sources, such as Reuters and the AP. Word for word. http://www.reuters.com/article/2012/05/22/us-facebook-forecasts-idUSBRE84L06920120522 http://www.reuters.com/article/2012/05/22/us-facebook-foreca...
- larrys 14y ago
  "Yahoo just reprints articles from the big news sources" ?? It is an article by Henry Blodget. Love him or hate him his opinion about this certainly means something (regardless of his past).
  - freehunter 14y ago
    Yes, it's an opinion article about a real news story from Reuters. It's not Yahoo making up the news.
mcantelon 14y ago
The guy on the right in the video, who calls the IPO the "ultimate muppet-bait IPO", is Henry Blodget, the CEO of Business Insider.

tbundy 14y ago

Not saying it's not true, but would be nice if there was more than an anonymous source to back this up. Unless I missed something.

stanleydrew 14y ago
Here's the Reuters report, which has more detail: http://www.reuters.com/assets/print?aid=USBRE84L06920120522 http://www.reuters.com/assets/print?aid=USBRE84L06920120522
freehunter 14y ago
Yahoo says that Reuters has the information. Reuters says the information was delivered by Scott Devitt, Internet analyst for JP Morgan. Scott Sweet, senior managing partner at the research firm IPO Boutique, backed up the story. It was also confirmed by "an official with a hedge fund firm who received a call from Morgan Stanley about the revision." http://www.reuters.com/article/2012/05/22/us-facebook-forecasts-idUSBRE84L06920120522 http://www.reuters.com/article/2012/05/22/us-facebook-foreca...
- tbundy 14y ago
  Ah, I hadn't seen the Scott Sweet quote. Thanks.

tomgallard 14y ago

I'm a bit confused about this. I distinctly remember the news about the earnings warning (due to difficulty of monetizing mobile users) coming out before the IPO. So there can be no complaint there. The article suggests that the problem is that the banks underwriting the IPO cut their own estimates for Facebook's earnings based on this warning, and then didn't share it with the general public. Surely this is nothing out of the ordinary- lots of banks/brokers/financial institutions produce research/notes on shares which are only distributed to major clients.

mrcapers 14y ago
exactly. the biggest issue is the suspicion of FB giving more material, informational color on rev. growth to the analyst(s) than to the public.

JumpCrisscross 14y ago

The original Reuters article does a better job explaining this than the link-bait title here: http://www.reuters.com/assets/print?aid=USBRE84L06920120522 http://www.reuters.com/assets/print?aid=USBRE84L06920120522 FB amended their S-1 to lower revenue forecasts. Following that, a research analyst at Morgan Stanley cut his revenue forecast on FB close to their IPO. Nothing here should fire anyone up. Equity research must be conducted independently of the investment bankers' non-public information. Given that they are opinions assembled from public data I don't see how disclosing it only to clients is a problem. If you want to publish a newsletter with stock tips and only disclose it to paying clients that is your prerogative, too.

cube13 14y ago
>A research analyst at Morgan Stanley cut his revenue forecast on FB close to their IPO. Following that, FB amended their S-1 to lower revenue forecasts. The latter may have been informed by the former but it cannot be said that the former was influenced by the latter without more information. It was the opposite. Facebook filed the amended S-1, and Morgan Stanley, JPMorgan Chase, and Goldman Sachs changed their forecast. From the Reuters article: >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.
- tomgallard 14y ago
  So Facebook expressed caution about revenue growth, and the banks downgraded their earnings forecast? I really don't see what the story is here! In fact the WSJ suggests that if they had released these revised earnings forecasts publicly, they'd have been breaking SEC regulations: Underwriters are barred by Securities and Exchange Commission rules from publicly issuing research on the IPOs they are involved in. But analysts are allowed to discuss their views with clients during these so-called road shows.
  - deleted 14y ago

chernevik 14y ago

The bankers surely know how disastrous something like this would be. Facebook has been aggressively indifferent to this whole process, which involves a lot of complexity both in decision making and communication. "Don't make the analysts look bad" is an important rule, but one that's easy to miss unless you spend some time thinking through your communications with the market. If FB's initial analyst communications emphasized optimism over credibility and deliverability, or FB was impatient with questions casting doubt, the analysts may have had reason to start with high estimates. The May 9 filing comes out and reveals those to be implausible, and they have to dial back to avoid looking silly or as if they're pumping the stock. If FB management hadn't spent a lot of time thinking about the relationships between the analysts and the investors, they may have missed the point that those investors are the analysts' ultimate clients. If they didn't spend much time with the analysts, they may have neglected building relationships where they could subtly signal issues without tripping regulatory problems. Or the analysts were idiots and screwed up the biggest assignments of their lives. Is all this shady company / banker / investor communication good? No, but this is how it's done right now, and if you want your partners to do well you have to work within the rules of the road. It isn't clear to me that Facebook took the time to do that.

deleted 14y ago
[deleted]
lmm 14y ago
Does facebook actually lose anything? It sounds like they walked away with the maximum amount of money possible; the bankers might be upset, and I can see that might make it harder for facebook to raise money in the future, but they're unlikely to need to for a while yet.
- chernevik 14y ago
  Well such a mistake would it hurt their ability to communicate with the analysts and the markets. They'd have less credibility and would have a harder time explaining anything tricky. They may hear less about what investors do and don't think and what drives the stock's movements. Over time those communication gaps can lead to more volatility in the stock and perhaps lower levels. That may not matter to Facebook until it needs capital. But it will matter to early investors and employees holding stock they'd like to liquidate. Some of those players may have such returns they don't care, but not all of them are so fortunate and in general it's a missed maximization. How important all of that is depends on what FB wants to do and be. More broadly, public markets are an important constituency, if those investors don't trust you that's going to influence your reputation in the media and with the government.

Irishsteve 14y ago

Facebook : The biggest tech IPO ever. Also possibly the most controversial tech IPO ever. It's down another 3% (On top of 10%). Irregularities popping out left right and centre. Not to mention companies being very public about discontinuing advertising with them. Someone hates Facebook.

horsehead 14y ago

I can't help but feel Facebook is on the way out. Probably not any time soon. But there is just a huge movement of people waiting for a good reason to leave. Perhaps the debacle that was the company's IPO will start the chain reaction that will end in Facebook going the way of MySpace, et al.

loverobots 14y ago

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. This makes zero sense. Aren't research analysts supposed to be separate from investment bankers? If so why is this odd. MS should not be able to tell its analysts to tone down a report or time it just because...

rorrr 14y ago

At current P/E of 104 and earnings per share of $0.31, this stock can only go down. There's no reasonable justification that FB will start making 5X money any time soon. Current fair price: $6

thereason 14y ago

I'm loving this sequence of events just for opportunity to see the cognitive dissonance of some HN commenters in action. The FB IPO strategy was to wait for the peak (or "plateau", if you prefer) in their growth, collect money from the public and then, for the insiders, quickly cash out. As for why they wanted to collect money from the public through an IPO, we can call it greed, but truthfully it was also the logical thing to do for the company. They knew were not going to grow revenues any further from the Facebook "business model". Revenues would slowly decline going forward. The novelty factor would disappear and advertisers would learn. But with an IPO they could bring in many years worth of revenue, by selling worthless shares to gullible investors, and extend the life of "Facebook Corporation". As long as Facebook has cash, they can stay "in the game". Like Microsoft, they do not need to innovate, they can just acquire or copy new players as they come along. They just sit and wait for the competition to arise, then quickly snuff it out, with cash. New ideas and innovation are what can kill a company like Facebook (or Yahoo, or Microsoft, or so many others). The way you stay in the game is by having the cash to purchase the work of the innovators who would otherwise render your business obsolete.

tatsuke95 14y ago
I can't help but be disturbed that you've lumped Microsoft in with Facebook and Yahoo...twice. Microsoft is one of the biggest companies in the world, makes a wide variety of products, both physical and digital, did $17BB in revenue in the first quarter of 2012, and has been a public company for over 25 years, returning massive value to its investors. So what do they have in common?
- deleted 14y ago
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- jacquesm 14y ago
  That new ideas and innovation can kill them. Likely in the case of microsoft it will cause them to change, along the lines of how microsoft forced IBM to change.
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mratzloff 14y ago

Possible securities fraud? I predict no one is punished and bonuses all around!

sparknlaunch12 14y ago

No surprises here. I always cringe when I see 'mum and dad' flotations. These type of deals are always plagued with bias, mostly in the favour of the big guys. The poor retail investors get sucked in by the allure of holding a brand name or having boasting rights. This thinking is dangerous when making an investment. I doubt most people would throw $1000 on a sports bet but quite happily to throw in more on buying a 'big name'.

Drbble 14y ago
Some people read the sports pages, some people read the business pages, but they are reading the same paper and they aren't so different from each other.
tedunangst 14y ago
Sports bets are binary win or lose propositions. You can mostly control the amount of money you are willing to lose on a stock bet.