Remember all those news stories that were dominating the tech blog headlines in the past few weeks? Remember the multitute of articles that oh-so-clearly spelled out the reasons we shouldn’t be investing in Facebook stock in the IPO? They really couldn’t have been any more direct and straight-forward in their reasoning, and yet, we’re still surprised to discover that the grass isn’t actually greener on the Facebook side.
We expected fireworks and were instead dissapointed with the pop and fizzle as the shareprice was seen tumbling over the past few days. So what exactly went wrong? and is there anyone directly at fault?
It seems that Zuckerberg’s wedding ceremony wasn’t the only thing kept hush-hush – the story of how Facebook stock was grossly overvalued in the run up to the world’s biggest tech IPO is now slowly coming out.
Reuters released a report which speculates that just days before the IPO, Facebook requested that their revenue forecasts be cut in line with their expected growth. It then transpired that Mongan Stanley informed their top clients of these changes - those most likely to sink plenty of money into the IPO. The higher than value share price, coupled with a lower than expected demand lead to the price falling by 18% since Friday. Ouch.
It’s now trading steady at around $32, but some are even forecasting that even this is higher than it should be. This morning, Scott Kessler of S&P Capital IQ gave Facebook a 12 month target price of $30.
Facebook investors have now filed a lawsuit against Morgan Stanley and Facebook for deceiving investors and over estimating the share price, as $2.5 billion was lost in the botched IPO. A spokesperson for Facebook has said “We believe the lawsuit is without merit and will defend ourselves vigorously.”
Wether it was General Motors pulling their advertising from Facebook, the delay in trading caused by a technical glitch at Nasdaq, or something more sinister – we won’t know for sure until 36 days when the analystists estaimations are made public.