But why reduce revenue forecasts in the first place? It's an unusual move, and additionally alarming because all three of Facebook's underwriters -- Morgan Stanley, JP Morgan and Goldman Sachs -- did so after Facebook released a small and vague revision to its IPO prospectus May 9, cautioning investors about its lack of monetization strategy for mobile. The disclosure reads:
"Based upon our experience in the second quarter of 2012 to date, the trend we saw in the first quarter of DAUs increasing more rapidly than the increase in number of ads delivered has continued. We believe this trend is driven in part by increased usage of Facebook on mobile devices where we have only recently begun showing an immaterial number of sponsored stories in News Feed, and in part due to certain pages having fewer ads per page as a result of product decisions."
As Blodget points out, it seems "inconceivable that all three analysts could have read the language above and concluded independently that Facebook's Q2 was weak and therefore decided to take the highly unusual step of cutting estimates in the middle of a company's IPO roadshow."
So what happened? Citing "a source," Blodget says analysts cut their estimates "because a Facebook executive told them to." Finra regulations forbid Morgan Stanley from sharing its revenue projections with Facebook, but there's nothing that forbids Facebook from telling Morgan Stanley that their projections may be too high, or from Morgan Stanley passing that information on to their clients.
A spokesperson would only tell CNBC that the bank was "in compliance with all applicable regulations" regarding Facebook's IPO.
Morgan Stanley may not have done anything illegal, but the rocky IPO does cast doubts on Facebook's second-quarter revenue expectations, and it's likely that doubt will be further reflected in Facebook's stock price in the coming days. Should analysts' estimates, which will be made public in 36 days, prove less bearish than the signs above indicate, the stock could reverse its downward trend. But the going promises to be uncertain until then.
Bonus: Facebook’s Road to IPO