Things keep getting worse for the social network. Facebook (Nasdaq: FB) shares fell another 8.5% today to slide all the way to $31 a share – 18% below the company’s $38 IPO price last Friday.
The latest reason why Facebook shares are tanking stems from something that happened during the company’s pre-IPO roadshow – or, more accurately, what didn’t happen.
Reuters reported today that analysts for Facebook’s lead underwriters – Goldman Sachs (NYSE: GS), JPMorgan Chase (NYSE: JPM) and Morgan Stanley (NYSE: MS) – cut their earnings forecasts for the company while it was in the middle of its IPO roadshow. The real crime, however, was that the underwriters only passed information about their earnings revisions along to a few marquee investors, and that the general public chomping at the bit to get a piece of the initial public offering.
Now that news of the revised earnings forecasts has leaked, those same IPO investors are selling their Facebook shares like there’s no tomorrow. Quite a few of them probably would never have bought the stock if they had known what the underwriters and a few select big-money investors secretly knew about a week before Facebook went public.
Though the lack of transparency isn’t necessarily Facebook’s fault, investors aren’t likely to distinguish between the underwriters and the company itself. Bad press about what Facebook’s underwriters didn’t divulge means bad press about Facebook. That’s part of why the sell-off continued with such fervor today. Clearly panic among anyone who holds Facebook shares has set in.
And between Nasdaq’s technical glitch forcing a half-hour delay on the Facebook IPO last Friday, the stock dropping below its IPO price in its second day of trading, and now this latest scandal, the social network has already encountered an inordinate amount of bad press in a short amount of time as a publicly traded company.