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TheStreet Open House

Facebook's $100 Billion Valuation Unrealistic?

NEW YORK ( TheStreet) -- For Facebook, which will carry a ticker symbol of FB, to receive a $100 billion valuation when it makes its IPO debut, investors will have to make a lot of assumptions about their future growth.

Do you remember when we were going to run out of oil in 1980?

Or what about solar energy and wind power? Remember when that was going to be the wave of the future?

How about when every TV spot had "AOL Keyword:...." in it? Or when Rupert Murdoch was so smart for buying MySpace for "only" $550 million?

Or how about when all the U.S. banks had to be nationalized back in 2009 and the world was going to end? And then Ben Bernanke was debasing the U.S. dollar by running the printing presses and gold was going to go to $10,000 an ounce?

My point is that we make assumptions all the time -- which later turn out to be wrong. Yet, at the time, all of these arguments seemed perfectly sensible and were even the conventional wisdom.

Keeping that in mind, let's return to Facebook.

This company doing $3.7 billion in revenues last year and "$1.000 billion" in net income is supposed to be worth $100 billion. Why?

I've collected the bull arguments below and the assumptions they rest on.

First, they will monetize their 845 million users.

Their growth is slowing -- especially in the Western world where most of their revenues are from -- but they haven't really started monetizing them yet. But will they be able to? What if people tune out once they do? And even if Facebook can sell as much in ads as Google (GOOG) does - 10 times more than their current run rate -- why will they be worth $200 billion instead of $100 billion, if Google's only worth $196 billion? So where is the upside for current investors buying in at $100 billion with lots of chances that Facebook will stumble along the way to being able to monetize ads as well as Google?

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