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In the run-up to Facebook's US$16 billion IPO, Morgan Stanley, thelead underwriter on the deal, unexpectedly delivered some negativenews to major clients: The bank's consumer Internet analyst, ScottDevitt, 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 tosome, said two investors who were advised of the revised forecast. They say it may have contributed to the weak performance ofFacebook shares, which sank on Monday - their second day of trading- to end 10 per cent below the IPO price. The US$38 (S$48.25) pershare IPO price valued Facebook at US$104 billion. The change in Morgan Stanley's estimates came on the heels ofFacebook's filing of an amended prospectus with the US Securitiesand Exchange Commission (SEC), in which the company expressedcaution about revenue growth due to a rapid shift by users tomobile devices. Mobile advertising to date is less lucrative thanadvertising on a desktop. "This was done during the roadshow - I've never seen that before in10 years," said a source at a mutual fund firm who was among thosecalled by Morgan Stanley. JPMorgan Chase and Goldman Sachs, which were also majorunderwriters on the IPO but had lesser roles than Morgan Stanley,also revised their estimates in response to Facebook's May 9 SECfiling, according to sources familiar with the situation. Morgan Stanley declined to comment and Devitt did not return aphone message seeking comment. JPMorgan and Goldman both declinedto comment. Typically, the underwriter of an IPO wants to paint as positive apicture as possible for prospective investors. Investment bank analysts, on the other hand, are required tooperate independently of the bankers and salesmen who are marketingstocks - that was stipulated in a settlement by major banks withregulators following a scandal over tainted stock research duringthe dotcom boom. The people familiar with the revised Morgan Stanley projectionssaid Devitt cut his revenue estimate for the current second quartersignificantly, 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 theinvestors. Scott Sweet, senior managing partner at the research firm IPOBoutique, said he was also aware of the reduced estimates. "They definitely lowered their numbers and there was some concernabout that," he said. "My biggest hedge fund client told me theylowered their numbers right around mid-roadshow." That client, he said, still bought the issue but "flipped his IPOallocation and went short on the first day." Very unusual Sweet said analysts at firms that are not underwriting IPOs oftenchange forecasts at such times. However, he said it is unusual foranalysts at lead underwriters to make such changes so close to theIPO. "That would be very, very unusual for a book runner to do that," hesaid. The lower revenue projection came shortly before the IPO was pricedat US$38 a share, the high end of an already upwardly revisedprojected range of $34-$38, and before Facebook increased thenumber of shares being sold by 25 per cent. The much-anticipated IPO has performed far below expectations, withthe shares barely staying above the US$38 offer price on theirFriday debut and then plunging on Monday. Companies do not make their own financial forecasts prior to anIPO, and underwriters are generally barred from issuingrecommendations on the stock until 40 days after it begins trading.Analysts often rely on guidance from the company in building theirforecasts, but companies doing IPOs are not permitted to give outmaterial information that is not available to all investors. Institutions and major clients generally enjoy quick access toinvestment bank research, while retail clients in many cases onlyget it later. It is unclear whether Morgan Stanley only told itstop clients about the revised view or spread the word more broadly.The firm declined to comment when asked who was told about theresearch. "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 fromMorgan Stanley about the revision. We are high quality suppliers, our products such as China Inflatable Tent Rental , Inflatable Bounce Houses Manufacturer for oversee buyer. To know more, please visits Commercial Inflatable Slide.
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