FacebookBy Marek Fuchs, TheStreet

NEW YORK -- Chatter about Facebook's (FB) initial public offering has made a hairpin turn, from celebrating the riches at hand to hand-wringing post-mortems on what went wrong, where and why.

After all the finger pointing and blame, there is one factor that should have served as a symptom of trouble, a certain signal that at least in this larval stage of Facebook's life as a public company, there would be regret, recrimination and loss.

Morgan Stanley (MS), the lead underwriter, cut earnings estimates in the lead-up to the offering. That is rare enough. But they did it while expanding the size of the offering and raising its price.

Curiously, most post-mortems -- including a New York Times (NYT) story titled "As Facebook's Stock Struggles, Fingers Start Pointing," mention these factors, but only as an afterthought and not specifically enough.

Reuters did well to hold their nose at the confluence of events:

"The lower revenue projection came shortly before the IPO was priced at $38 a share, the high end of an already upwardly revised projected range of $34-$38, and before Facebook increased the number of shares being sold by 25 percent."

Remember for any future offering that this is a big, flapping red flag.

As always, though, when it comes to post-mortems on events that took place only last week, perspective is in order. The Times did well to end on a fitting note in this regard, by pointing to the problematic Amazon (AMZN) offering:

"Still, the final story for Facebook's stock has yet to be written. Amazon.com quickly tumbled after making its public market debut in May 1997, trading well below its offer price of $18 a share for several months. A year after the I.P.O., Amazon had roughly quadrupled, and on Monday the shares closed at $218.11."

That doesn't mean that Amazon's history will necessarily repeat itself, but it might. If an underwriter, though, cuts numbers as it's raising the price of the offering and allotment: watch out. That history, in all probability, will repeat.


At the time of publication, Fuchs had no positions in any of the stocks mentioned in this column.


More on TheStreet.com


Increase your money and finance knowledge from home

Goal Setting

Want to succeed? Then you need goals!

View Course »

What Is Your Risk Tolerance?

Answer the question "What type of investor am I?".

View Course »

Add a Comment

*0 / 3000 Character Maximum

30 Comments

Filter by:
freeze1617

Facebook is going to have a hard time making money. They can't charge the user's because they will leave by the millions. And advertising on Facebook is a joke, like GM has pointed out. And tomorrow some seventeen year old can come up with the next social website.
As far as Morgan Stanley is concern, why should they care? They break the rules all the time, not just them all of the big banks. And the government doe's nothing. They fined them a few million on something they made hundreds of millions on. Wall Street has never been more arrogant then now.

May 23 2012 at 3:53 PM Report abuse rate up rate down Reply
Dee

like Ray replied I am amazed that a mother able to profit $4635 in 1 month on the computer. did you read this page NuttyRich.com

May 23 2012 at 12:43 PM Report abuse rate up rate down Reply
plewis213

The best one in the air is the problems with Greece...one day they are wonderful and on the way to sucess...the next day they are going to hell in a hand bag...do I smell a rat here ...Greece has become a cash cow for stock traders

May 23 2012 at 10:36 AM Report abuse rate up rate down Reply
plewis213

If you think this is the biggest scam of the century...wall street should love it as they are in the scam business

May 23 2012 at 10:21 AM Report abuse rate up rate down Reply
claustzu

How is Facebook going to make a profit? I use it because it's free - but like the on-line New York Times website, I'll drop it like a hot potato when they start charging a subscription fee - life's too short to pay for wasted time. As for advertising revenues, good luck with that! Amazon survived because it sells a product at volume (and a discount in the case of e-books).

May 23 2012 at 9:36 AM Report abuse +1 rate up rate down Reply
Anagaho

Facebook , the scam of the century, this is the biggest scam that has hit the market!!

May 23 2012 at 8:49 AM Report abuse rate up rate down Reply
dsh1007155

The game is rigged. The lap dogs in gov't are in on it. Buyer beware.

May 23 2012 at 8:30 AM Report abuse +1 rate up rate down Reply
sixthmd

Market manipulation for corporate gain, plain and simple. A brief study of the COMEX, where gold and silver are traded, reveals that possibly as much as 90% of the precious metals that are bought and sold are only "paper" with no actual backing in physical stock. Morgan Stanley is a major player in this "game" and can manipulate that market with shorts that would otherwise be impossible if sales were backed on a 1 to 1 basis with physical supply. (look at their dealings in the silver market) The Pan Asian Gold Exchange attempted to remedy this corrupt scheme with a 1:1 exchange system. Curiously, at the last moment, an American investor upped their stake in the exchange and swayed the board to change the 1:1 rules. Without this "paper" silver or gold, real market forces would apply, and manipulation would become very difficult. If ever there is a "run" on physical gold or silver, COMEX will likely collapse, as there isn't the supply to back up the phony sales. Capitalism definitely needs both a rule book and an impartial referee to work correctly. The problem is that our politicians are neither willing or inclined to rein in the big money that contributes to their campaigns and provides for cushy board positions after their days in office are over.

May 23 2012 at 8:18 AM Report abuse rate up rate down Reply
ilm9p

Having cake and eating it too. Nothing unusual about that for the hacks at Morgan Stanley. How is this news?

May 23 2012 at 6:47 AM Report abuse +1 rate up rate down Reply
classshows

ANYONE WHO BOUGHT SHARES THIS PAST WEEK DIDN"T LISTEN TO JIM CRAMER< HE WARNED YOU OVER AND OVER AND OVER TO WAIT TILL THE DUST SETTLES AND PRICE ADJUSTS. NO SYMPATHY FOR GREED AND STUPIDITY - AS TEMPTING AS THE HYPE MADE IT SOUND. IT'S REALLY A $24 - 28. STRIKE POINT FOR THE GENERAL INVESTOR OF COMMON SHARES.

May 23 2012 at 2:47 AM Report abuse rate up rate down Reply
1 reply to classshows's comment
quintondall

Jim Cramer was one of many. I ready several websites (including HP's financial guru interviews) and about 7 of 10 said it's a no buy, maybe 2 were neutral and the other one said it's a buy. It was always going to be a bust. This is no Apple or Google (or Amazon). It's a great idea with 900million subscribers(probably 60% use it once or twice a month or less) and at leats 25% of the remainder would drop it if they had to pay for it. Their only revenue source is advertising (difficult to do effectively and get a return) and other kinds of add on services which is already a very crowded market. It's one thing to have a great idea, it's another thing to make real money from it. I think MZ is a start up kid (and growth phase - first 10 years) and, unless he matures or changes or develops in some way they then need someone else to take it through the mature phase of the cycle to avoid a decline and death.

May 23 2012 at 11:31 AM Report abuse rate up rate down Reply