Berlin - A German data protection official has warned Facebook investors that the social networking site's $38 starting share price is based on practices that breach European privacy rules, as the company fell flat on its market debut.
Facebook shares stumbled on Friday after an early surge faded, rising just 37c over its initial public offering price, dampening optimism over the much-anticipated debut for the world's biggest social network.
Now, Thilo Weichert, the data protection commissioner for the northern German state of Schleswig-Holstein, says shareholders should be aware that if European privacy authorities have their way, "Facebook's business model will implode".
Weichert was quoted by German daily Frankfurter Allgemeine Zeitung on Friday saying Facebook could be ordered to stop transferring user information to the United States.
Facebook's IPO prospectus warns investors that its business is subject to "complex and evolving US and foreign laws and regulations regarding privacy, data protection, and other matters" that could harm its business.
Weichert confirmed the accuracy of the quotes in an e-mail.
Earlier on Friday, Facebook's shares, priced at $38 on Thursday in the largest-ever initial public offering (IPO) for a technology company, jumped 12% to $42.55 in the opening Nasdaq trades but within minutes fell back to the offering price.
A midday rally pushed the price back up but it closed up by just 37c.
Wait until the hype fades
"The negativity in the market overall has put a damper on the IPO," said Darren Hayes, a Pace University professor and former investment banker told AFP.
"It's not uncommon in an IPO to see a big rise and then for the price to come back down, but I'm a bit surprised [by the market action] after all the hype."
"I think there may be some sceptical investors who see some challenges in the long-term outlook of the company."
Gerard Hoberg, an economist at the University of Maryland said there was enthusiasm from some buyers but skepticism from professionals, AFP reported.
"What I think is going on is you have a lot of bullishness from retail investors, people who use Facebook, and there's a lot of those investors creating a lot of buying pressure," he said.
"But professionals who were looking at the numbers behind Facebook had a lot more doubts."
Hoberg said the market introduction "is not a disaster by any stretch, and you also could say that the Facebook owners are quite pleased because they didn't leave a lot of money on the table. But it will not be a pleasant taste in people's mouths if Facebook falls below $38 anytime in the near future".
A report on the Business Insider financial blog said the price did not fall below $38 because of a large number of standing orders at the offering price.
The Wall Street Journal said the underwriting investment banks also stepped in to support the price.
Lou Kerner of the Social Internet Fund said the market action suggests the IPO was correctly priced.
"The company raised a ton of money, lots of early investors, employees, and founders were able to monetise shares, and it's trading up a little, so the new investors did OK," he said.
James Hughes, chief market analyst at London's Alpari said "the real value of Facebook is not likely to be known until the hype of the IPO has died away and investor have been able to digest how the company is going evolve to be the money-making machine many expect it to be".