Shares in Lastminute.com slumped below their issue price yesterday amid concerns about the loss-making retailer's heady valuation.

Lastminute shares fell 62.5p to 320p, 157.5p below last Tuesday's closing price when the shares were floated. The company, which in the last quarter generated turnover of £409,000 and made an operating loss of £6m, is now valued at £481m, compared to a high of £845m on its first day.

The latest slide coincided with the first day of unconditional dealing, when many private investors who had bought shares in the hope of a quick profit were able to trade them. Instead they were nursing a paper loss. The issue was 40 times oversubscribed and small investors were only issued with 35 shares each at 380p. Even before dealing fees are taken into account those who sold at yesterday's close price lost £21 on a £133 investment.

The end of Lastminute's short honeymoon with investors coincided with a heavy sell-off of technology stocks in London and on the US Nasdaq market. Last night the FTSE's Techmark 100 index closed off 291.8 points at 4585.74.

Advisers to Lastminute yesterday denied it had been over-hyped and over-valued. They emphasised the potential long-term benefits.

One adviser compared Lastminute's performance with that of telecoms groups Colt and Orange and internet companies Freeserve and QXL. All four floated at a premium then slipped below the issue price. They now trade significantly above the float price.

The early performance of Lastminute shares is likely embarrass broker Morgan Stanley, which employed star US internet analyst Mary Meeker to co-author research on the company. Lastminute's founders, Brent Hoberman and Martha Lane Fox, appointed the US investment bank largely because it had floated only one internet business that fell below its issue price.

Morgan Stanley is understood to have supported the share price by buying shares.