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"Facebook's initial public offering is off to a less than spectacular start, to put it generously. The stock closed at $31 on its third day Tuesday, down 18% from its initial offer price of $38, which valued the company just above $100 billion.\nAfter Facebook's stock closed flat its first day, investors and media began to speculate whether Facebook's initial offer price was too high. Others argued that momentum was damaged by Nasdaq's technical difficulties, which delayed buying by a half hour, as well as by a report that General Motors was planning to pull its Facebook ads just days before the IPO. \nFacebook's revised IPO prospectus, and the relatively poor performance of other social media stocks in 2011, may have further dampened investors' enthusiasm for the stock.\nNow, conjectures about the reasons for Facebook's spiraling stock performance are growing more sinister. In a report published Tuesday, Reuters suggested that Morgan Stanley, the lead underwriter on Facebook's public offering, told its top clients most likely to place large orders for Facebook stock that the bank's analysts were cutting their revenue forecasts for the company just days before the IPO. That may explain, in part, why demand for Facebook stock has been weaker than expected.\nThe problem, as Reuters points out, is that Morgan Stanley isn't allowed to publish earnings estimates until 40 days after the IPO. It's not illegal for Morgan Stanley to give major clients a verbal preview of those estimates per se, but it does seem, as Business Insider's Henry Blodget claims, \"grossly unfair\" to retail investors and the market as a whole.\nBut why reduce revenue forecasts in the first place? It's an unusual move, and additionally alarming because all three of Facebook's underwriters \u2014 Morgan Stanley, JP Morgan and Goldman Sachs \u2014 did so after Facebook released a small and vague revision to its IPO prospectus May 9, cautioning investors about its lack of monetization strategy for mobile. The disclosure reads:\n\"Based upon our experience in the second quarter of 2012 to date, the trend we saw in the first quarter of DAUs increasing more rapidly than the increase in number of ads delivered has continued. We believe this trend is driven in part by increased usage of Facebook on mobile devices where we have only recently begun showing an immaterial number of sponsored stories in News Feed, and in part due to certain pages having fewer ads per page as a result of product decisions.\"\nAs Blodget points out, it seems \"inconceivable that all three analysts could have read the language above and concluded independently that Facebook's Q2 was weak and therefore decided to take the highly unusual step of cutting estimates in the middle of a company's IPO roadshow.\"\nSo what happened? Citing \"a source,\" Blodget says analysts cut their estimates \"because a Facebook executive told them to.\" Finra regulations forbid Morgan Stanley from sharing its revenue projections with Facebook, but there's nothing that forbids Facebook from telling Morgan Stanley that their projections may be too high, or from Morgan Stanley passing that information on to their clients.\nA spokesperson would only tell CNBC that the bank was \"in compliance with all applicable regulations\" regarding Facebook's IPO.\nMorgan Stanley may not have done anything illegal, but the rocky IPO does cast doubts on Facebook's second-quarter revenue expectations, and it's likely that doubt will be further reflected in Facebook's stock price in the coming days. Should analysts' estimates, which will be made public in 36 days, prove less bearish than the signs above indicate, the stock could reverse its downward trend. But the going promises to be uncertain until then.\nBonus: Facebook\u2019s Road to IPO\n\n\nFacebook's Road to IPO\n\n\n\n\n\n\n\n2004: First Offers Turned Down\n\nFacebook launches with humble beginnings that most people have seen dramatized in The Social Network by now. It was a small social site backed by only a little money, and limited just to the undergrads at Harvard. Right out of the gate, Facebook turned down offers from an unknown investor and Friendster, each offering $10 million. This was, of course, when the company was still called TheFacebook.\nImage courtesy of Flickr.\n\n\n\n\n\n\n\n\n\n\n\n2005: Serious Interest\n\nBy 2005, \u201CTheFacebook\u201D was becoming more and more interesting to potential investors. They waved off bids from the likes of NBC, The Washington Post Group, and two separate attempts from both MySpace and Viacom/MTV.\nImage courtesy of wwwes; Flickr.\n\n\n\n\n\n\n\n\n\n\n\n2006: Microsoft &amp; Yahoo Come Calling\n\nFacebook became more legitimized as it moved into more colleges, and then expanded to the public. Microsoft signed a large advertising deal with Facebook, an event that began a long, positive relationship between the two companies.\nJust a month later, Yahoo made a $1 billion offer to buy Facebook, but it was rebuffed after Yahoo\u2019s stock dropped and the company had to lower to $800 million.\nImage courtesy Ludovic Toinel; Flickr.\n\n\n\n\n\n\n\n\n\n\n\n2007: Forging an Alliance\n\nAfter a lucrative advertising relationship, Microsoft invests heavily in Facebook, putting in $240 million for 1.6% stake in the company. This raised Facebook\u2019s estimated worth to $15 billion, after only three years of existence. Despite this, Zuckerberg said the possibility of an IPO is \u201Cyears out.\u201D \nImage courtesy of iStockphoto, michalPuchala\n\n\n\n\n\n\n\n\n\n\n\n2008: Valued at $4 Billion\n\nIn an interview with 60 Minutes in January, Mark Zuckerberg said there was no chance of a Facebook IPO that year. In August, Facebook gave itself a valuation of $4 billion, then began letting fully vested employees sell 20% of their stock based on that valuation.\nImage courtesy of 60 Minutes.\n\n\n\n\n\n\n\n\n\n\n\n2009: More Investment\n\nFacebook gets $200 million investment from Russian Digital Sky, who bought 1.96% of the company with that. That investment raised Facebook\u2019s valuation to $10 billion.\nTwo other estimates of wealth came out later in 2009 that lowered Facebook\u2019s valuation, probably as more terms of the deal with Digital Sky became clear.\nImage courtesy dborman; Flickr.\n\n\n\n\n\n\n\n\n\n\n\nMarch 2010: Zuckerberg Talks IPO Rumors\n\nZuckerberg is still coy about an IPO, saying there is \u201Cno rush,\u201D and proving that Facebook doesn\u2019t need the money. \nImage courtesy of JD Lasica; Flickr.\n\n\n\n\n\n\n\n\n\n\n\nNovember 2010: Valuation Climbs\n\nTrading on secondary markets suggests Facebook is the third most valuable web company in the United States. As private investors sold their stakes, valuations of the company soared as high as $56 billion.\nImage courtesy Dan Farber; Flickr.\n\n\n\n\n\n\n\n\n\n\n\nJanuary 2011: First IPO Moves\n\nGoldman Sachs and Digital Sky Technologies drop a massive $500 million cash infusion into Facebook, pushing its value upwards of $50 billion. According to USA Today, that valuation exceeds companies like eBay and Nike.\nFacebook also launches an $1.5 billion equity offering through Goldman Sachs, letting some private investors buy a piece of Facebook.\nImage courtesy of AMagill; Flickr.\n\n\n\n\n\n\n\n\n\n\n\nJune 2011: The $100 Billion IPO?\n\nReports circulate that Facebook\u2019s IPO could exceed $100 billion, and that it might go public during the first quarter of 2012. \nImage courtesy of Andrew Feinberg; Flickr.\n\n\n\n\n\n\n\n\n\n\n\nJanuary 2012: IPO Imminent\n\nFacebook halted trading of its shares in secondary markets for three days starting Jan. 25, a possible indicator the company\u2019s long-awaited IPO is coming soon. \nThe signs were correct, as Facebook announced its IPO on Feb. 1, ending the stream of speculation.\nImage courtesy J. Fudyama-Powers; Flickr.\n\n\n\n\n\n\n\n\n\n\n\nApril 2012: Facebook Purchases Instagram\n\n\nFacebook announced it was purchasing popular photo-sharing service Instagram for $1 billion in April. The deal was reportedly brokered by Zuckerberg himself, and was a major acquisition for the company.\nImage courtesy of iStockphoto, sd619\n\n\n\n\n\n\n\n\n\n\n\nMay 2012: Facebook Goes Public\n\nFacebook is set to go public May 18, and the IPO could raise $90 to $104 billion. No one can be sure until trading closes though.\nImage modified, courtesy Robert Scoble, Flickr.\n\n\n\n\n\n\n\n"^^<http://www.w3.org/2001/XMLSchema#string>
<http://mashable.com/2012/05/22/facebook-ipo-whats-wrong/>