No. of Recommendations: 3
It was trumpeted as the mother of all I.P.O.s
It turned out to be a F.U.B.A.R.

For starters, lead underwriter Morgan Stanley cut their revenue forecast even as the roadshow was under way. As did JP Morgan and Goldman Sachs, all apparently reacting to Facebook's May 9 amended SEC filing expressing caution about future revenues.

At least one hedge fund client got wind of this and promptly shorted the stock.

Hmmm... exactly how many not-so-privileged retail buyers do you think found out about that before they went all in on Friday?

As though that weren't enough to really shaft gullible buyers, Morgan Stanley and Facebook then decided to jack up the number of shares offered by 25%.

"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."

"The bank decided with Facebook executives to boost the size and price days before the May 17 IPO, ignoring advice from some co-managers"

"According to one London-based fund manager who asked not to be named, bankers indicated demand was so strong that he placed a bigger order than he thought he would get, leaving him with 40 percent more Facebook shares than anticipated. He sold most of that stock on the first day of trading. "

It gets even better. Here's one view of how the shares were allocated, basically drowning demand:
"For weeks, perhaps months, every communique from syndicate desks street-wide cautioned retail offices that allocations would be very small and that clients’ expectations needed to be managed – standard language for any deal that has a decent chance for an opening day pop. It’s situations like those that are the syndicate coordinator’s worst nightmare – not nearly enough stock and way too many mouths to feed. This was the case right through last Thursday, when allocations were expected to go out to the offices.

And then came the stock. A flood of it. More than anyone, anywhere, expected. Advisors who’d indicated for stock got more than they’d asked for. Those who didn’t even indicate – or didn’t rank highly enough on the process-driven totem pole to get stock – suddenly found themselves awash in stock they never expected to get, and that they had told clients to forget about. The unconfirmed word was that FB had instructed its underwriters to broaden retail participation (but even that would not account for what was unleashed on retail)."

Never mind how Nasdaq then proceeded to mangle whatever remained of genuine demand!
GG/MDP Home Fool
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