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Experts caution on Facebook IPO frenzy

business Updated: May 18, 2012 18:05 IST

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As the shares of social networking giant Facebook begin trading on the NASDAQ exchange today, experts believe that the stock is overpriced at USD 38 apiece and one must wait for now to invest in the firm.



NYU Stern School of Business Finance ex-Professor Kenneth Froewiss said that adding Facebook to a portfolio early on is risky for experienced pros and investment amateurs alike.



"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," Froewiss said.



He said it is like playing a lottery.



"Might someone on occasion reap a tremendous windfall by doing so? Yes, but then again, on occasion someone wins the lottery. That does not make the lottery a great investment in general," he added.



Facebook made history by launching one of the largest initial public offerings for a technology firm, aiming to raise USD 16 billion that pegs the value of the world's most popular social networking site at USD 104 billion.



The shares would begin trading on the NASDAQ exchange today under the symbol 'FB'.



The public offer is expected to close on May 22. At USD 16 billion, the size of Facebook's IPO is the third-largest for a US company, with the largest being the Visa IPO, which raised USD 17.9 billion in 2008, according to Renaissance Capital.



The current excitement about the company's stock market debut does not guarantee long-term interest or success, experts said.



"In my experience this stock and its IPO has seen more enthusiasm than any other I have seen over my 40 years of investment experience," said Lewis Altfest, CEO of NYC-based Altfest Personal Wealth Management.