05/21/2012 11:54 EDT | Updated 07/21/2012 05:12 EDT

Facebook shares fall sharply

Shares of Facebook closed down 11 per cent Monday, their second day of trading on the Nasdaq market, with one analyst suggesting underwriters were too rosy in their estimates of demand for the stock in its IPO last week.

Facebook finished the day at $34.03 US, down $4.20 from its close on Friday, the day it went public.

The drop is even more dramatic measured from the company's opening price on Friday. When it started trading publicly around 11:30 a.m. that day, it changed hands at $42.05.

The IPO had been priced at $38.

Wedbush analyst Michael Pachter, who gave a positive "outperform" rating for Facebook before its IPO, said he thinks the underwriters overestimated demand for the company's stock.

Last week, the underwriters, led by Morgan Stanley, increased the offering price range. On Wednesday, Facebook's early investors and other stockholders increased the number of shares they were selling in the IPO. Both had seemingly been signals that there was strong demand for shares.

"The late addition of 84 million shares to the offering overwhelmed demand, limiting the first day price," Pachter said in a note to investors.

Those extra shares held down the price on Friday, preventing the first-day pop many traders had been hoping for.

Now disillusioned, those traders may be unloading the shares they had bought in anticipation of such a bump.