Selling Facebook
17 Pages Posted: 30 May 2017
Abstract
This public-sourced case was co-developed with CFA Institute for its university partners, candidates, and members as an exercise in ethical decision making. The case works well for CFA partner universities and others seeking an ethics case set in the financial-services industry. The case is set in May 2012 as investment bankers and Facebook executives prepare for FB's highly anticipated IPO. After meeting with more than 500 prospective investors at a luncheon event, Facebook's CFO confides that he has lost confidence that the company will meet its financial forecasts for the quarter. The senior investment banker leading the IPO must decide how best to counsel his client, and how to comply with his firm's code of ethics and the law. Time is short and expectations are high as they prepare for meeting other prospective investors and finalize the details of the IPO. Students are the decision makers and have the opportunity to identify and evaluate the various stakeholders and their respective objectives, as well as ethical principles, conflicts of interest, and situational influences that may be involved. Students enrolled in the CFA Program® can apply the CFA Institute Code of Ethics and Standards of Professional Conduct to the situation to recommend a course of action. The case is also useful for teaching students about the IPO process in the United States, including information asymmetry and how large firms may serve clients with opposing interests.
Excerpt
UVA-F-1737
Rev. Nov. 4, 2015
Selling Facebook
It was the evening of Monday, May 7, 2012, less than two weeks before the much-anticipated initial public offering (IPO) of Facebook, Inc. Investment banker Michael Grimes listened attentively as David Ebersman, chief financial officer of Facebook, explained that the social media company's spectacular revenue growth seemed to be slowing—just as the company was preparing to sell its shares to the public. The most recent data showed that Facebook continued to add users at a rapid rate, but more and more of those users were accessing the social media site via mobile devices—smartphones and tablets—rather than from personal computers. Because Facebook did not yet offer advertising on its mobile site, that trend was adversely affecting revenue growth. Facebook's internal forecasts had estimated that revenue would reach $ 1.1 to $ 1.2 billion for the quarter and $ 5 billion for the fiscal year. In mid-April, as part of the preparations for the company's IPO, Ebersman had shared those forecasts with a roomful of equity research analysts from Wall Street firms participating in the IPO. For the analysts, the numbers formed the basis for their valuation models and the recommendations they shared with clients who were interested in investing in the IPO. Now, with user growth outpacing growth in advertising revenue, Ebersman was no longer confident of the financial projections he had shared with the analysts.
. . .
Keywords: Ethics, Initial public offering, IPO, CFA Institute, Code of Ethics, Standards of Professional Conduct, Global Research Settlement, Ethical decision making, Ethical principles, Capital Markets, Buy-side, Sell-side
Suggested Citation: Suggested Citation