Facebook investors who bought shares expecting a significant increase in the short term were naive, said James Gorman, CEO of investment bank Morgan Stanley, the leading underwriter of initial public offering of the social network, writes Bloomberg. “Those who believed that buying these shares will bring them immediately a huge gain were naive, motivated by faulty assumptions. Companies are listed on the stock market to achieve a long-term shareholder base. I hope that they did not panic during the turmoil of the last days,” Gorman said in an interview with CNBC.
Facebook has turn out well on May 18 in the largest initial public offering ever deployed in the IT industry, attracting $16 billion, as the company was listed with a market capitalization of $104.2 billion. Company’s shares development within five days of listing, however, is the weakest among the largest IPOs in the last 10 years. The operation was marked by heated controversy on the chaotic debut on the Nasdaq market, whose systems could not cope with the huge volume, and the way Facebook and underwriters communicated key information on the company’s financial situation.
Investors have opened several lawsuits against Facebook, Nasdaq, Morgan Stanley and other investment banks involved in the transaction, all accused that they have overestimated the price of shares in the public offering of $38 per unit.
Facebook shares fell 27% from May 18 and closed Friday on the Nasdaq market at $27.72. Gorman said that the allocation of 26% of the shares offered to retail investors in the IPO is not unusual, given the unprecedented interest shown by the general to the public offer. The head of Morgan Stanley said he was confident that authorities will not find anything wrong with how Facebook IPO was prepared.
Several U.S. regulatory agencies, including the Securities and Exchange Commission announced that they investigate Facebook lisitng. The main complaint of investors is linked to the estimates on the evolution of revenue and profit of Facebook described in the prospectus for initial public offering. A few days before the date of listing, Facebook presented a revised leaflet that warned that the company’s financial results could be affected in future by the increasing access to social networking on mobile devices, whose relatively small screens do not allow display of advertisements.
There were reports in the press that Facebook would have modified the estimates for the second quarter and for the current year and the new figures were provided only to an “elite” of large investors.
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