Facebook IPO: A Tale Of Boom and Bust

Just when Mark Zuckerberg thought he was about to give Facebook the IPO breakthrough, situation changed. Little did he know that the new move would actually prove to be one bumpy ride for Facebook! The stock market debut for the social networking site did not turn out to be as hospitable as anticipated.

Plagued with a multitude of technical problems at the NASDAQ Stock exchange, angered investors have already filed two lawsuits against Facebook and Morgan Stanley – the bank which shepherded the deal. In short, the much sensationalized and hyped initial public offering story turned out to be another economic setback for small scale investors.

Shareholders in their lawsuits have claimed that reports regarding negative analysis about Facebook from some clients were withheld before the company went public. With losses reaching $100million Facebook underwriters say that they will adjust prices for investors who overpaid for the shares.

According to Judson Gee, a financial advisor in Charlotte, N.C, he called one of his clients at the very day of IPO who had plowed $50,000 into Facebook stock. Gee was informed by inside sources that Morgan Stanley had only informed selected customers about the reduction of revenue estimates of Facebook just before the IPO.

Despite the fact that Morgan Stanley was skeptical about the IPO, the bank decided to raise the total number of shares available for sale by 25%, to 421 million. Why was this miscalculation made? The answer lies in the attitude that big banks of Wall Street have now developed. Its heads they win its tails they still win.

Morgan Stanley along with other underwriters of Facebook’s IPO was able to rack in massive profits. Reason being that as Facebook’s stocks dropped to $31, all players involved in the underwriting of the deal picked up shares at lower prices from the market. Hence the greater difference in price, the greater is the profit they made. One important thing that investors need to know is that, the more Facebook shares fall, the more money Morgan Stanley and Facebook IPO underwriters make.

The technical glitch in the way the entire IPO has been conducted has raised serious questions about the transparency of internal processes that are becoming a tradition in Wall Street deals. Especially after the JP Morgan jolt when the financial institute registered a $2billion trading loss. The Facebook IPO fiasco has once again manifested that in the battleground of Wall Street, what all matters are interests.