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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.

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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.
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