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Facebook Investors ‘Naïve’? Or Misled?

Morgan Stanley CEO doesn't earn points by calling out investors


Yesterday, Morgan Stanley (NYSE:MS) CEO James Gorman gave an interview on CNBC that focused heavily on the botched Facebook (NASDAQ:FB) IPO. He said the firm followed all the rules and that offerings can be volatile.

Oh, and he also said this:

“I’d like to think that firstly the group of people who thought they were buying the stock so they could get an enormous pop were both naive and bought it under the wrong pretenses. What any company is doing when you are taking companies public is to establish a long-term investor base. So to that individual, I would hope that they haven’t panicked during the flurry over the last few days.”

Yes, investors need to understand the risks with any stock, and certainly an initial public offering. In fact, the IPOPlaybook offered extensive coverage of the Facebook IPO, and I advised investors to hold off for a while before even thinking about purchasing shares.

Not so was the advice from the many brokers at Morgan Stanley, it appears. Consider that 26% of the Facebook IPO shares went to retail investors, and many are sitting on some big losses now. In fact, compared to the performance of other social IPOs, the Facebook offering was a complete disaster. Here’s a look:

Company Ticker First-Day Return Return After 10 Days
LinkedIn LNKD +109% +75%
Yelp YELP +64% +45%
Groupon GRPN +31% +24%
Pandora P +9% +9%
Zynga ZNGA -5% -6%
Facebook FB +0.6% -26%

As you can see, only Zynga broke its IPO; and all the rest but Pandora had double-digit returns after two weeks.

In light of all this, doesn’t it seem reasonable that investors might have expected a decent quick return on the Facebook IPO? I think it does. It certainly doesn’t sound “naive.”

But Morgan Stanley boosted the price range and the number of shares issued ahead of the Facebook IPO — despite the fact one of the analysts planned to lower his revenue and earnings forecasts on the company. And rather than a pop on the first day of trading, FB shares essentially were unchanged … then lost 26% after just 10 days.

Unfortunately, we probably never will know what really happened with the Facebook IPO. And perhaps Morgan Stanley is completely blameless.

But who cares? The fact is the firm helped pulled off one of the worst IPOs in history. And comments like those by Gorman will make it tougher for MS to regain its credibility with investors.

Especially on the retail side.

Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He also is the author of “The Complete M&A Handbook”, “All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli or reach him via email. As of this writing, he did not own a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

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