As the Facebook IPO debacle continues, a lot of people are still scratching their head about what really happened. In short, the social network’s underwriters lowered their earnings estimates after Facebook realized that its second quarter was not going to be as profitable as it had originally thought. This information was then distributed to a select few investors before the company’s public debut on May 18.
Since this information was not widely published, a lot of confusion ensued once Facebook began trading. As a result, the stock dropped considerably from its opening price of $38 and is now sitting around $30.
According to Francis Gaskins, the President of IPO Desktop, none of these events are surprising given Facebook’s past quarter earnings. He explained to us that the company was valued too high from the beginning – a mistake which he believes Mark Zuckerberg is responsible for.
Gaskins tells us that there are “lots of risk [and] lots of uncertainty in the stock.” What’s more, the company’s credibility and brand have both been harmed.
At this point, several lawsuits have been filed against many of the company’s underwriters, Nasdaq, Facebook, and even Zuckerberg himself. Congress is also planning to step in to investigate. There is also talk of Facebook dropping Nasdaq for the NYSE.
It remains unclear as to what will happen next, but one thing that is certain is that underwriters will examine IPOs much more carefully going forward.