Reuters) – In the run-up to Facebook’s $16 billion IPO, Morgan Stanley, the lead underwriter on the deal, unexpectedly delivered some negative news to major clients: The bank’s consumer Internet analyst, Scott Devitt, was reducing his revenue forecasts for the company.
The sudden caution very close to the huge initial public offering, and while an investor roadshow was underway, was a big shock to some, said two investors who were advised of the revised forecast.
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The people familiar with the revised Morgan Stanley projections said Devitt cut his revenue estimate for the current second quarter significantly, and also cut his full-year 2012 revenue forecast. Devitt’s precise estimates could not be immediately verified.
“That deceleration freaked a lot of people out,” said one of the investors.
Scott Sweet, senior managing partner at the research firm IPO Boutique, said he was also aware of the reduced estimates.
“They definitely lowered their numbers and there was some concern about that,” he said. “My biggest hedge fund client told me they lowered their numbers right around mid-roadshow.”
That client, he said, still bought the issue but “flipped his IPO allocation and went short on the first day.”
