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Facebook Bankers Secretly Cut FB Revenue Estimates In Middle Of IPO Roadshow

finance.yahoo.com

21–30 of 98 posts

Re: Facebook Bankers Secretly Cut FB Revenue Estimates In Middle Of IPO Roadshow

#21
I'm a bit confused about this. I distinctly remember the news about the earnings warning (due to difficulty of monetizing mobile users) coming out before the IPO. So there can be no complaint there.

The article suggests that the problem is that the banks underwriting the IPO cut their own estimates for Facebook's earnings based on this warning, and then didn't share it with the general public.

Surely this is nothing out of the ordinary- lots of banks/brokers/financial institutions produce research/notes on shares which are only distributed to major clients.

Re: Facebook Bankers Secretly Cut FB Revenue Estimates In Middle Of IPO Roadshow

#23
post #4

It is not possible to trust Wall Street, the whole thing is built on insider trading. They call customers that are not on the inside "dumb money" and unashamedly try to figure out how to take their money.

The "market" is usually caveat emptor - the buyer has to take into consideration how much they trust the seller. On top of that, society has some laws against fraud that make lying more harmful to the seller. That means the buyer can have some amount of faith in the seller. For publicly traded companies, this goes a lot further. The SEC is supposed to create an environment with reasonable auditing and pretty harsh penalties for lying. This is supposed to facilitate a huge amount of business, since all the businesses can trust each other a lot more (when the stakes would otherwise be high enough to attempt fraud). So really the only thing preventing fraud at that scale is the SEC, and if it's compromised in any way, we're kinda doomed.

Re: Facebook Bankers Secretly Cut FB Revenue Estimates In Middle Of IPO Roadshow

#24

"The SEC should investigate this immediately." Ha, funny!

The author of the article, Henry Blodget, was investigated and fined and banned from working in the finance industry by the SEC.

http://en.wikipedia.org/wiki/Henry_Blodget

He probably doesn't agree with the prevailing (?) wisdom that the SEC is toothless.

Re: Facebook Bankers Secretly Cut FB Revenue Estimates In Middle Of IPO Roadshow

#25
The original Reuters article does a better job explaining this than the link-bait title here: http://www.reuters.com/assets/print?aid=USBRE84L06920120522

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.

Re: Facebook Bankers Secretly Cut FB Revenue Estimates In Middle Of IPO Roadshow

#26
post #7
post #4

It is not possible to trust Wall Street, the whole thing is built on insider trading. They call customers that are not on the inside "dumb money" and unashamedly try to figure out how to take their money.

Is it this bad in Europe and Asia? or just in the US? Almost every day we hear banks doing this, banks doing that - most of it is unethical, and many of it probably illegal, yet nothing seems to be happening to them. This is depressing.

Insider trading (and the wider 'market abuse') can be extremely difficult to prove. The FSA fines a handful of people each year, and prosecutes even fewer.

If firms chose not to trade, when they otherwise would have done (which seems to be the case here), based on insider information, that is nigh on impossible to prove.

Re: Facebook Bankers Secretly Cut FB Revenue Estimates In Middle Of IPO Roadshow

#27

The original Reuters article does a better job explaining this than the link-bait title here: http://www.reuters.com/assets/print?aid=USBRE84L06920120522 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' no…

>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.

Re: Facebook Bankers Secretly Cut FB Revenue Estimates In Middle Of IPO Roadshow

#28
So if I'm getting the timing right, in the week leading up to the IPO, they were just about simultaneously dropping their revenue forecasts while boosting the initial offer price?

This whole thing just leaves me with a bad taste in my mouth.

Re: Facebook Bankers Secretly Cut FB Revenue Estimates In Middle Of IPO Roadshow

#29
post #4

It is not possible to trust Wall Street, the whole thing is built on insider trading. They call customers that are not on the inside "dumb money" and unashamedly try to figure out how to take their money.

This is a silly viewpoint. It is silly because it is disempowering; it is admitting defeat before even trying to learn how markets work. Yes, nearly all markets are massively manipulated by those with weight, with the Forex markets being one of the least manipulated because those who would like to manipulate them generally don't have the means to do so.

The important thing to realize is that markets, manipulated or not, are pain optimization machines. They move in ways that maximize psychological distress to to the greatest number of participants, and this happens for sound fundamental reasons based on human psychology, moment to moment supply and demand, and the way in which most people approach a trade-slash-investment. This is often expressed as "markets move because they have to, not because they want to" or "markets move to where the stops are and then reverse". They don't do it because of nefarious secret masters, they do it because that is the natural state of operation of a market.

I strongly recommend reading Mastering the Trade by John Carter - it's one of the best books out there to explain why markets act they way they do in a clear and easily understood way that makes sense to non-traders.

Re: Facebook Bankers Secretly Cut FB Revenue Estimates In Middle Of IPO Roadshow

#30
post #27

The original Reuters article does a better job explaining this than the link-bait title here: http://www.reuters.com/assets/print?aid=USBRE84L06920120522 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' no…

>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 fore…

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.

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