So, a few days in and Facebook shares have fallen almost 20 per cent from their bloated debut. It now emerges that Morgan Stanley, lead book runner on the IPO, issued a downgraded forecast following Facebook’s own revised filing noting the shift to mobile use would slow down its revenue growth. However, accusations are flying on Wall St that Morgan Stanley only shared this new opinion with its big clients, leaving retail investors, or Muppets as they are known by professionals, to go ahead and pay inflated, overhyped, prices.
The image of Nasdaq, the IPO process and Facebook itself wasn’t helped by the shambles of the stock opening with software problems delaying the float and leaving many brokers flying blind. Defying predictions of a $50 open – against the $38 cost – the stock opened at $42 and headed south.
Scott Sweet, head of IPO Boutique, told the NY Times he had heard of brokers dumping their entire allocation as soon as the market opened; “they knew the jig was up.” So far there is every sign that is the best anyone is going to do from this stock for a long time to come.
It matters because, along with Groupon, Linkedin and Pandora, these overhyped IPOs are a pattern and will make the TMT sector look like the same kind of train-wreck that it appeared to be in 2000. Many ‘innocent’ companies that were actually doing fine making hardware, developing middleware or applications or whatever, got hurt then, and they will again.
If bankers and managers cared about anything except their options or fees, they would take extra care when dealing with stock in consumer facing high growth companies. But that is asking too much. We know they all regard consumer investors as Muppets ripe for a little gouging.
Surely then it should be the regulators who are mindful of fools being parted from their money by dodgy prospectuses, selective information sharing and massive hype. Of course the regulators – SEC, The Financial Industry Regulatory Authority, the secretary of state in Massachusetts – are all over it now, after the fact. Absolute Muppets.
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