Houston: Amid lawsuit over Facebook's much hyped IPO, experts are now questioning if retail investors -- who were considering it a 'hot deal' -- are in for a shock.
"Retail investors are scared. Most people thought this was a hot deal, and now that it's not, no one knows where the bottom is," Lou Kerner of the Social Internet Fund said.
Facebook has also run into trouble with a group of shareholders filing suit against the social networking site, its executives and Morgan Stanley.
The suit, filed on Wednesday morning in the US District Court in Manhattan, charges that Facebook and its lead underwriter concealed "a severe and pronounced reduction" in Facebook revenue growth forecasts before the company's shares were offered to the public.
According to media reports, regulators are examining whether Morgan Stanley, the lead underwriter of the initial public offering, selectively informed clients of an analyst's negative view of Facebook's prospects.
From the start, financial experts were of the opinion that it can be a risky investment.
"I would tell people not to invest in an IPO on the first day. That's what I told a number of clients," said Dorothy Lewis, a Certified Financial Planner and founder and CEO of the Tacoma firm Financial Insights.
She speculated before the stock began trading that there would be missteps. "Because of the demand, I told clients they would not even know what it was trading for," she said.
Former NYU Stern School of Business finance professor Kenneth Froewiss had also forecast that adding Facebook to a portfolio early on is risky for experienced pros as well as investment amateurs.
It's like playing the lottery, he had said.
"Even for those individuals with above-average net worth, purchasing shares at an IPO, especially a 'hot' one that has been widely hyped, is rarely a good idea. The excitement about the company's stock market debut doesn't guarantee long-term interest or success," Froewiss said.
However, experts have said, if allegations prove to be true, it would be a large stain on Facebook's reputation and every bank involved.
The scrip of the company has lost over 20 percent since it got listed on the Nasdaq exchange on Friday. After closing only a shade above the offer price of USD 38 on Friday, the stock closed with a loss of 11 percent on Monday. On Tuesday, Facebook shares dropped 9 percent.
First Published: Thursday, May 24, 2012, 17:05