Facebook is the largest social-networking site in the world, but investors who purchased stock are still questioning revenue, which is one of the reasons why fell below its $38 offer in its second trading day.
The 11 percent drop in its stock price was surprising, and it concerned enough investors to get out before it tanked, but it was all premature. There’s a lot of blame going around as investors point fingers at Morgan Stanley to the Nasdaq Stock Market itself. Facebook will either meet expectations as the most anticipated initial public offerings (IPO) in history, or it will simply tank leaving many questions unanswered.
“It was like the gang that couldn’t shoot straight,” said Michael Mullaney, who helps manage $9.5 billion as a chief investment officer at Fiduciary Trust in Boston. He said he placed Facebook orders for clients. “The underwriters mis- estimated what actual demand was, and there was pure execution failure coming out of the Nasdaq.”
Taking the most heat is Morgan Stanley, said Mullaney. The bank was lead underwriter among the 33 firms Facebook hired to manage the $16 billion sale of stock. The bank decided with Facebook executives to boost the size and price days before the May 17 IPO, ignoring advice from some co-managers, said people with knowledge of the matter, who declined to be identified because the process was private.
Facebook increased the number of shares being sold in the IPO by 25 percent last week to 421.2 million and raised its asking price to a range of $34 to $38 from $28 to $35. Had Facebook kept the original terms, investors may have had a better shot at a first-day pop. Instead, the stock was little changed in its debut because Morgan Stanley intervened to prevent it from falling below the IPO price.
If it’s a failed IPO, only time will tell, but the real question is whether the company can earn as much money as it boasts about the number of users it has on the Web.