A monitor shows the value of the Facebook stock at the Nasdaq Marketsite in New York on Tuesday. (Reuters)
New York, May 22: Wall Street is playing the Facebook blame game.
As shares of the social network tumbled in their second day of trading, bankers, investors and analysts wondered what had gone wrong with the initial public offering of Facebook, the most highly anticipated technology debut in years.
Some fingers are pointing at Morgan Stanley, the lead banker on the IPO, while others criticised Nasdaq and even Facebook itself. In the aftermath, critics contend that Facebook’s offering price was too high and too many shares were sold to the public, hurting the stock’s performance out of the gate.
Facebook’s troubles could damp enthusiasm for a spate of companies set to go public in the coming months. It could also spur changes in the IPO process. In particular, big institutional investors like Fidelity and Vanguard may demand greater say on pricing, at the expense of companies and their bankers.
“It’s a huge disappointment,” David J. Abella, a portfolio manager at Rochdale Investment Management who tried to get shares in the offering but did not get an allocation. “Investors were expecting easy money on this one.”
Facebook was promoted as the next Google, a technology star primed to soar.
But the stock stumbled in its debut on Friday. A systems error at the Nasdaq, where shares of Facebook are listed, hampered trading in the first few hours. With the company hovering around its offering price of $38 a share, Morgan Stanley had to step in to help stabilise the price. Facebook shares ended the day almost at the same place they started.
While bankers may have hoped that Facebook would bounce back on Monday, unfettered by technical problems, such optimism faded as the stock sank. It tumbled 11 per cent, closing at $34.03.
For Morgan Stanley, landing the Facebook public offering was one of the biggest investment banking coups in almost a decade, and a successful debut would most likely have cemented its position as the dominant force in technology IPOs. But Morgan Stanley now faces questions about its role in the events surrounding Facebook.
It is an unusual situation for the bank to find itself in. In the last year, it led the biggest technology offerings, including those of LinkedIn, Groupon and Zynga.
The activity has been lucrative for the firm, with the Facebook IPO alone bringing in an estimated $67.8 million, according to Standard & Poor’s Capital IQ.
But the firm has also gained a reputation for being guarded. A number of bankers involved in the Facebook IPO and other offerings have said Morgan Stanley makes decisions with little input from other underwriters.
Rivals involved in the Facebook underwriting process say that Morgan Stanley exerted an enormous amount of control over important aspects of the process, including dominating meetings with institutional shareholders.