FB amended their S-1 to lower revenue forecasts. Following that, a research analyst at Morgan Stanley cut his revenue forecast on FB close to their IPO. Nothing here should fire anyone up.
Equity research must be conducted independently of the investment bankers' non-public information. Given that they are opinions assembled from public data I don't see how disclosing it only to clients is a problem. If you want to publish a newsletter with stock tips and only disclose it to paying clients that is your prerogative, too.
Oh FFS. Anything from Henry Blodget should immediately be ignored or delinked.
The man bilked all sorts of money from widows and orphans (in the form of pensions and mutual funds). Most normal people would want to make amends before showing their face in public, let alone the way he punches up stories.
If Blodget really bilked money from widows and orphans (and I don't doubt it) how come he's not running a bank? Seems like the perfect item for the resume.
Maybe he's just pissed-off because he was the sacrificial lamb for a lot of other widow-and-orphan-bilkers and wants to make his amends by bringing his old friends to some sort of reckoning?
>A research analyst at Morgan Stanley cut his revenue forecast on FB close to their IPO. Following that, FB amended their S-1 to lower revenue forecasts. The latter may have been informed by the former but it cannot be said that the former was influenced by the latter without more information.
It was the opposite. Facebook filed the amended S-1, and Morgan Stanley, JPMorgan Chase, and Goldman Sachs changed their forecast.
From the Reuters article:
>The change in Morgan Stanley's estimates came on the heels of Facebook's filing of an amended prospectus with the U.S. Securities and Exchange Commission (SEC), in which the company expressed caution about revenue growth due to a rapid shift by users to mobile devices. Mobile advertising to date is less lucrative than advertising on a desktop.
So Facebook expressed caution about revenue growth, and the banks downgraded their earnings forecast?
I really don't see what the story is here!
In fact the WSJ suggests that if they had released these revised earnings forecasts publicly, they'd have been breaking SEC regulations:
Underwriters are barred by Securities and Exchange Commission rules from publicly issuing research on the IPOs they are involved in. But analysts are allowed to discuss their views with clients during these so-called road shows.
AFAIK, in the US, this doesn't prevent the Broker Dealer arms of the bank from publishing reports for an IPO underwritten by the Investment Banking arm of the bank. I know it doesn't in Brazil. There should be a Chinese Wall between the IB and the Broker Dealer and no meeting should happen between analysts from both arms without the presence of compliance. However, this is often not observed and difficult to enforce since members of both banking arms are often friends and socialize together.
The problem is there were no revenue forecasts in the S-1. And the subtle change in the S-1 language wasn't an adequate basis for all the analysts to revise their revenue forecasts.
The analysts discussed their own forecasts with Facebook and the result of the discussion was that they lowered their numbers. Companies subtly make their discomfort known if analysts put out numbers they don't think they can beat. See http://dealbook.nytimes.com/2012/05/22/facebook-i-p-o-raises...
And, since the forecast changes were made with Facebook's implicit approval or at least without Facebook's objection, clients who received those updated forecasts got information from Facebook which was not available to the public in the S-1, or elsewhere.
What in particular in your linked article contradicts the original article?
1) The estimates were changed in mid run-up - check
2) This was considered unusual - check (your article, not Henry Blodget, has the screaming caps "very unusual" in it).
3) This may have contributed to Facebook's less than stellar performance - check
4) The estimates were disseminated only to large clients - not confirmed or contradicted, so the Blodget, for better or worse, is saying more than your link.
The OP says this is something "buyers deserve to be outraged about". It also insinuates "news of the estimate cut", implying the S1/A, was selectively distributed when it was only the research that was.
Then there is the title and speculation that there were "nods and winks" between the underwriters and equity analysts. I read the S1/A when it came out and came to the same qualitative conclusion (FB guides forecast down -> lower value on stock isn't exactly groundbreaking causation).
Blodget says more than the Reuters wire. The surplus is speculation blended in smoothly with the facts.
FB amended their S-1 to lower revenue forecasts. Following that, a research analyst at Morgan Stanley cut his revenue forecast on FB close to their IPO. Nothing here should fire anyone up.
Equity research must be conducted independently of the investment bankers' non-public information. Given that they are opinions assembled from public data I don't see how disclosing it only to clients is a problem. If you want to publish a newsletter with stock tips and only disclose it to paying clients that is your prerogative, too.