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| Image via CrunchBase |
And now for some more bombshell news about the Facebook IPO...
Earlier, we reported that the analysts at Facebook's IPO underwriters had cut their estimates for the company in the middle of the IPO roadshow, a highly unusual and negative event.
What we didn't know was why.
Now we know.
The analysts cut their estimates because a Facebook executive who knew the business was weak told them to.
Put differently, the company basically pre-announced that its second quarter would fall short of analysts' estimates. But it only told the underwriter analysts about this.
The information about the estimate cut was then verbally conveyed to sophisticated institutional investors who were considering buying Facebook stock, but not to smaller investors.
The estimate cut appears to have influenced the investment decisions of at least some institutional investors, dampening their appetite for Facebook stock, and crucially, affecting the price at which they were willing to buy Facebook stock.
As I described earlier, at best, this "selective disclosure" of the estimate cut is grossly unfair to investors who bought Facebook stock on the IPO (or at any time since) and didn't know about it.
At worst, it's a violation of securities laws.
This latest chapter in the Facebook IPO story began this morning, when Reuters' Alistair Barr reported that the research analysts at the company's lead underwriters - Morgan Stanley, Goldman Sachs, and JP Morgan - had cut their earnings estimates for Facebook during the company's IPO roadshow. This was highly unusual, if not unprecedented (I've been in and around the tech IPO business for almost 20 years, and I've never heard of it happening.)
Analysts cutting estimates is generally regarded as significant negative news for stocks. This is especially the case when the analysts who cut their estimates are very close to a company - and, therefore, are thought to have particularly good information.
(In the old days, before the implementation of Regulation Fair Disclosure, companies used to manage the market's expectations by telling trusted analysts to change their estimates. Reg FD banned that practice.) {Read on Business Insider}
Facebook's Zuckerberg sells $1.13 billion
