SEC Needs to Investigate Facebook Estimate Cut: Blodget
“I was shocked. I’ve been around the tech IPO business for 20 years and I’ve never heard of anything like this.”
That’s what Henry Blodget said on CNBC’s Fast Money Halftime Report, in response to reports that an analyst at Morgan Stanley – one of the IPOs underwriters -- cut Facebook forecasts during its roadshow.
According to Reuters, "The bank's consumer Internet analyst, Scott Devitt, reduced his revenue forecasts for the company" in the days leading up to the IPO.
“The SEC has to look at this – it’s bizarre," says Blodget. "How can you have an estimate cut in the middle of a road show and not have that communicated widely?”
According to the report, allegedly, the information was only communicated to a few big institutional investors - it was not announced publicly. “That’s a gross violation of selective debt dissemination – where some investors have information that others do not,” says Blodget.
Blodget, who was a famed analyst during the dotcom bubble but was later banned from the securities industry and is now the editor of The Business Insider, suggests all the underwriters may come under scrutiny – not just Morgan Stanley.
“I’m very curious to hear how this is going to be defended by Morgan Stanley as well asGoldman Sachs and JPMorgan ." (JPMorgan Chase and Goldman Sachs were also underwriters on the IPO but had lesser roles than Morgan Stanley.)
"It’s unbelievable that (anyone) would think it’s not material that the underwriter is cutting estimates during a road show – how could you not want to know that!” Blodget adds.
The Reuters report mentioned above and Blodget's commentary come at a time when Wall Street is trying to get a better handle on all the events surrounding the Facebook IPO.
On Friday, Nasdaq delayed Facebook's first trade for 30 minutes amid chatter that investors were not receiving proper confirmation from the exchange.
And despite expectations of a huge pop, the much-anticipated IPO has performed far below expectations, with the shares barely staying above the $38 offer price on their Friday debut and then plunging on Monday.
In case you're wondering, Blodget also tells us he thinks Facebook is currently worth between $17 - $24.
“There are lots of possibilities for Facebook to become an incredibly powerful business. The future could justify the IPO price and a lot higher,” he admits.
“But we’re not seeing any signs of it now – all we’re seeing from Facebook is an advertising business that they’ve built and it’s decelerating rapidly – when I look at that the valuation of 65 times consensus estimates versus Google at 12 times – it seems like too much of a premium.”
All told, “That just doesn’t compute,” says Blodget.
Posted by CNBC's Lee Brodie
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Trader disclosure: On May 22, 2012 , the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Pete Najarian is long AAPL; Pete Najarian is long C; Pete Najarian is long INTC; Pete Najarian is long SBUX; Pete Najarian is long PEP; Pete Najarian is long FB; Pete Najarian is long FIO; Patty Edwards is long AAPL; Patty Edwards is long GLD; Patty Edwards is long INTEL; Patty Edwards is long JOYG; Patty Edwards is long SBUX; Patty Edwards is long COP; Patty Edwards is long AMZN; Patty Edwards is long PEP; Patty Edwards is long PVH; Steve Cortes is long QQQ; Steve Cortes is long GOOG; Steve Cortes is long LNKD; Steve Cortes is long SO; Steve Cortes is long DEO; Steve Cortes is long GS; Steve Cortes is long CLX; Steve Cortes is short XHB; Brian Kelly is long AMAT; Brian Kelly is long GE; Brian Kelly is long INTC; Brian Kelly is long MSFT; Brian Kelly is long ORCL; Brian Kelly is long T; Brian Kelly is long VZ; Brian Kelly is long WFC; Brian Kelly is long KRE; Brian Kelly is long GLD; Brian Kelly is long FDX; Brian Kelly is long UPS; Brian Kelly is long USG; Brian Kelly is short EUROSTOXX 50; Brian Kelly is short CAC40; Brian Kelly is short FTSE100
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