This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Can Facebook Live Up to Its Valuation Hype?

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK ( TheStreet) -- Earlier this month, Facebook filed documents with the U.S. Securities and Exchange Commission setting in motion an initial public offering that has investors clamoring for a piece of the Internet giant and dreaming in dollar signs.

In its filing, the company indicated that it would seek to raise $5 billion through the sale of stock, although analysts predict that number could be as high as $10 billion. It would be the largest Internet company stock sale since Google (GOOG) went public in 2004. Analysts put the value of the company between $75 billion and $100 billion, depending on investor appetite.

At the same time, Facebook revealed a set of solid financials that has potential investors taking notice. The company recorded $1 billion in profits last year -- its third straight year of profitability -- from $3.71 billion in revenue.

Follow TheStreet on Twitter and become a fan on Facebook.

By comparison, Facebook far outpaces Internet rivals that have recently made the transition from private to public entity. For example, when Facebook game developer, Zynga (ZNGA), went public last year, it posted a comparatively tepid $90.6 million in profits, while LinkedIn (LNKD) was barely profitable and Pandora (P) was still in the red.

Certainly no one can gainsay the success that Facebook has had in the eight years since its founding. Its user base has grown exponentially -- 845 million and counting, albeit a generous counting -- making it by far the world's largest social network. And with a string of profitable years under its belt, it appears to be poised for success. Among those sure to benefit are the Wall Street banks, including JPMorgan Chase, Morgan Stanley, Goldman Sachs and several others that will generate tremendous fees through the process.

But, just as with the companies that have gone before, Facebook must answer some tough questions about how it will build value for shareholders, not just generate wealth for bankers and insiders. Facebook must show that it can continue to successfully navigate the transition from a freewheeling, innovative Internet start-up hatched in a Harvard dorm room to a disciplined and structured public company that must, first and foremost, meet the demands of the market and its investors. And to do so, it must develop a skill-set that may be perceived as antithetical to the very skills that made it a success in the first place.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
AAPL $122.37 -0.50%
FB $95.21 -1.84%
GOOG $632.59 0.10%
TSLA $266.79 1.13%
YHOO $37.42 -0.66%

Markets

Chart of I:DJI
DOW 17,745.98 -5.41 -0.03%
S&P 500 2,108.63 +0.06 0.00%
NASDAQ 5,128.7850 +17.0520 0.33%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs