Did Facebook underwriter spook investors before IPO?

Morgan Stanley revised its revenue forecast for company, shocking investors and likely contributing to the stock's poor performance, sources tell Reuters.

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While Facebook's underwriters have been credited with keeping the stock afloat during its first day of trading, a new report suggests that the action of one the company's bankers may have helped sink the social network's much-anticipated offering well before its first trade.

In the days before Facebook's IPO, the lead underwriter for the deal told major clients it was reducing its revenue forecast for the company, according to a Reuters report.

Morgan Stanley's revised forecast so close to the monster IPO came as a huge shock to some, likely contributing to the lackluster performance of the social-networking giant's stock, two investors who were advised of the revision told the news agency. JPMorgan Chase and Goldman Sachs, who also served as major underwriters for the deal, also reportedly revised their earnings estimates before the IPO.

Not long after the stock began trading Friday at $42.05, shares tumbled to their $38 offering price. Shares plummeted again Monday, hitting a low of $33 before recovering slightly to close out at $34.03, down 11 percent for the first full day of post-IPO trading.

The revenue estimates came on the heels of Facebook filing an amended S-1 document with the Securities and Exchange Commission that emphasized how the shifting focus of its users to mobile devices was hurting what it could charge for ads and threatened its long-term revenue prospects.

"This was done during the roadshow -- I've never seen that before in 10 years," one source at a mutual fund company briefed by Morgan Stanley told Reuters.

The situation was certainly exacerbated by Facebook's 11th-hour decision to increase its official offering price range by almost 15 percent.

The stock's poor performance has caused many to revisit the company's fundamentals. At $38, Facebook's price-to-earnings ratio was more than four times that of Google's 2011 PE ratio. That's despite Google posting revenue and profit that were 10 times higher than Facebook.

The social networking site boasts nearly 1 billion users who log in to the site each month, and roughly half a billion who check the site daily. While these are the kinds of numbers and engagement advertisers want, Facebook should be generating more revenue from its display ads.

This was illustrated by General Motors, which pulled some $10 million in paid advertising from Facebook just days before its IPO, saying that it just wasn't getting much traction from the ads. GM's action seemed to be validated by a survey conducted before the IPO by digital-marketing agency Greenlight that found that 44 percent of respondents said that they "never" click on an advertisement or sponsored listing in the social network.