Comment by chernevik | Hacker News Reader

Comment by chernevik | Hacker News Reader

The bankers surely know how disastrous something like this would be. Facebook has been aggressively indifferent to this whole process, which involves a lot of complexity both in decision making and communication. "Don't make the analysts look bad" is an important rule, but one that's easy to miss unless you spend some time thinking through your communications with the market.

If FB's initial analyst communications emphasized optimism over credibility and deliverability, or FB was impatient with questions casting doubt, the analysts may have had reason to start with high estimates. The May 9 filing comes out and reveals those to be implausible, and they have to dial back to avoid looking silly or as if they're pumping the stock.

If FB management hadn't spent a lot of time thinking about the relationships between the analysts and the investors, they may have missed the point that those investors are the analysts' ultimate clients. If they didn't spend much time with the analysts, they may have neglected building relationships where they could subtly signal issues without tripping regulatory problems.

Or the analysts were idiots and screwed up the biggest assignments of their lives.

Is all this shady company / banker / investor communication good? No, but this is how it's done right now, and if you want your partners to do well you have to work within the rules of the road. It isn't clear to me that Facebook took the time to do that.

Was it really that shady?

From the Reuters article, it sounds like Facebook issued the updated SEC filing during the middle of their roadshow, and the analysts went over it and issued new forecasts to their paying customers.

Keep in mind that the underwriters are barred from making public forecasts during the lead up to an IPO.

Also keep in mind that the SEC filing was public, so anyone could go and read through it. So it's not like this was inside information. It was available to be consumed.

Estimates of underwriters' estimates are presumed to be indicative of management opinion. That's a touch shady to begin with, ideally the analysts shouldn't have any "extra" information in the first place, right? Given that a change in those estimates is interpreted as a change in management opinion -- if that change is communicated to one set of investors, the others are disadvantaged.

To me a lot of this falls within reasonable expectations of how openly subjective information can be communicated in the first place. Any communication involving judgment and ambiguity and anticipation is going to travel better and faster within some social network, and that's going to advantage some over others. I don't think the advantages are insurmountable, crowds are often wrong and anyone good at this stuff can find their way in. But I definitely see why other people find the whole thing fishy.

The facts were public. The analysis was not. Here's the information that the analysts were working off of:

http://www.sec.gov/Archives/edgar/data/1326801/0001193125122...

The facts were that Facebook had less profit for Q1 2012 than Q1 2011, despite making 25% more revenue. It was blamed on lack of new revenue from the mobile space.

The "disadvantage" is to people who were blindly buying Facebook without doing due diligence.

I'd be very surprised if the analysts didn't have sit-down meetings with FB staff and management.

How many investors do you think were reading every amendment to the S-1 up to May 9? Not even considering how many did not read the S-1 to begin with.

The use of the Greenshoe tactic to make the price appear stable also seems to suggest they were targeting naive investors who would only be watching the share price after trading began, having no regard for who was buying them.

Please tell me I'm wrong.

As for Henry Blodget, while he may be biased in favor of sensationalism to garner pageviews, he seems to be in a unique position to comment on this sort of maneuvering to manipulate naive "web investors". He was once in the center of it, during the first Bubble. We cannot say the same for the WSJ's writers.

Please tell me I'm wrong.

An investor who didn't read the s-1 was just wandering through a casino pulling slot machines without even reading the payout disclosures. There is right reason such an investor should profit. If that investor runs a fund for your capital, he should be fired.

Does facebook actually lose anything? It sounds like they walked away with the maximum amount of money possible; the bankers might be upset, and I can see that might make it harder for facebook to raise money in the future, but they're unlikely to need to for a while yet.

Well such a mistake would it hurt their ability to communicate with the analysts and the markets. They'd have less credibility and would have a harder time explaining anything tricky. They may hear less about what investors do and don't think and what drives the stock's movements.

Over time those communication gaps can lead to more volatility in the stock and perhaps lower levels. That may not matter to Facebook until it needs capital. But it will matter to early investors and employees holding stock they'd like to liquidate. Some of those players may have such returns they don't care, but not all of them are so fortunate and in general it's a missed maximization.

How important all of that is depends on what FB wants to do and be.

More broadly, public markets are an important constituency, if those investors don't trust you that's going to influence your reputation in the media and with the government.

Every employee who is locked into their shares for 6 months is losing money every day.

Find me one employee who would feel ripped off that their 5000, 10000, or 100000 sell at even $20 instead of some hypothetical number could have been achieved by better hypothetical management. Oh those poor people, should have taken the offer to work at _____ instead?

It's pretty easy to be on the outside and say, "Oh, boo-hoo, they're still millionaires", but it's a different story when it's your own wealth. I assure you I could find people around the world who would say the same about your earnings.

Anyway, the point was that the stock diving isn't victimless. There are real people losing real wealth.

Edit: http://www.reddit.com/r/finance/comments/u0om7/im_an_employe...

Not if what we're talking about is facebook getting a higher valuation than they "should" have. If facebook is "really" worth 90 billion, then the employees are going to get x% of 90 billion 6 months from now; that would still be true if the IPO valuation had been 80 billion rather than 100. No?

Reply on news.ycombinator.com