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NEW YORK ( TheStreet) -- Social media site Facebook has been much in the news of late. Its creation was the subject of what many predict will be an Oscar-winning movie. Its founder, Mark Zuckerberg, was recently dubbed Time Magazine's 2010 Person of the Year. And now, thanks to a $500 million infusion of capital from Goldman Sachs (GS) - Get Goldman Sachs Group, Inc. Report and Russian investor Digital Sky Technologies, Facebook is reportedly worth $50 billion.

Oh, really?

If that $50 billion valuation is accurate, Facebook is now worth more than





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Time Warner


, and is running up hard against such Internet giants as


(AMZN) - Get, Inc. Report

and targeted rival

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(GOOG) - Get Alphabet Inc. Class C Report


But what is that valuation based on? Some media experts have compared Facebook with


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, valued at about $70 billion. But Disney has real, tangible assets -- parks, hotels, cruise ships, iconic images to market on everything from t-shirts to tableware, and a massive library of classic animated films - to back its assessed value. Facebook has a virtual network that, according to


, links one-twelfth of the world's population. However, according to the

Wall Street Journal

, Facebook still has enormous infrastructure costs that include as much as $700 million for two data centers, and its profits have yet to be publicly disclosed. When an investor buys a piece of Facebook, what exactly does that investor get?

The sudden, meteoric explosion in value of online social media sites like Facebook and


is eerily reminiscent of the rise, about 15 years ago, of the online businesses that created the "dot-com bubble." The Internet was far less widely used than it is today, with many consumers feeling a little queasy about sharing personal and credit card information with businesses that lacked brick-and-mortar facilities. Still, visionaries saw the potential for the Internet we have today, so virtual companies sprung up and grew like weeds as investors threw money their way.

Some, like Google and Amazon, developed an enduring online presence and lasting financial value. But far too many -- GeoCities,, and others - quickly lost value when it became apparent that their rapid growth wasn't yielding revenue. Investors who sold their dot-com stocks before the bubble burst made fortunes -- those who didn't lost their shirts.

So, how much is Facebook's network of users really worth? The potential is clear -- when so many people are gathered in one (virtual) place, offering so much personal information about themselves, they create an unprecedented platform for targeted advertising. Or they would, if they were on the network to shop. When eBay and Amazon suggest products to their customers, they're talking to people who've already proven that they're interested in buying similar products. People go on Facebook for a variety of reasons -- to catch up with old friends, share pictures, make new acquaintances, and talk, sometimes endlessly, about themselves. Whether they'll appreciate having their virtual conversations interrupted by advertising, targeted or not, remains unclear.

It's also unclear whether Facebook will actually be able to share information about its users' browsing habits with advertisers. Complaints about the ineffectiveness of Facebook's privacy policies have arisen in multiple countries, part of a larger social concern about how private information gets used on line. In December, the Federal Trade Commission issued a proposed framework that, among other things, would permit Facebook users to block advertisers from accessing information about their online interests. If that framework is implemented and widely used by Facebook subscribers, it could seriously impair the site's value as a potential platform for targeted marketing.

What is clear is that Goldman Sachs has a significant interest in Facebook's financial value, at least for the short term. Goldman Sachs' decision to invest heavily in Facebook has had some interesting repercussions. For one thing, the investment has allowed Facebook an opportunity to postpone issuing an IPO. That means that, at least for the moment, Facebook doesn't yet have to disclose its finances or publicly address investor complaints.

The company's private status may be short-lived, though. The SEC is investigating the secondary market for social media investments, and is reportedly looking at whether Facebook has exceeded the 499-investor threshold for public disclosure. Goldman Sachs reportedly intends to establish a special investment fund that would allow its customers to invest up to $1.5 billion more in Facebook. If the SEC concludes that the fund was created solely to avoid its public disclosure rules, it may choose to look through the fund and force Facebook to go public.

Goldman Sachs' investment also puts the firm in an ideal position to handle Facebook's IPO when it eventually is issued, perhaps sometime next year. That, of course, has the potential to generate substantial revenues for Goldman Sachs' clients. Google's 2004 IPO raised an initial $1.2 billion for the company. After all the hype, Facebook's IPO can hardly be expected to raise less.

Putting the hype aside, though, there remains a significant question as to whether Facebook's potential for generating income is more virtual than real. Goldman Sachs' investment has certainly bolstered Facebook's apparent value but investors in Facebook, including its employees, will eventually want to exit and take profits with them. If it turns out that Facebook can't live up to its potential for generating advertising revenue, venture capitalists who invest for the long term may get burned.

One would hope that Goldman Sachs knows better than to inflate Facebook's apparent value to score a quick profit for its investors. However, investors are probably prudent to remember that, only last year, Goldman Sachs settled a huge securities fraud suit with the SEC, paying $550 million and admitting that its marketing materials associated with a complicated security were "incomplete." Goldman Sachs reportedly is putting the finishing touches on a report on its business practices and ethics that should issue later this month. Would-be investors in Facebook may want to read that report before putting their real money into a virtual enterprise. As the dot-com bubble demonstrated, potential profits don't always materialize.


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This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.