The much anticipated Initial Public Offer (IPO) of Facebook is just around the corner and understandably there is a lot of excitement surrounding the same. As per news reports, the company is expected to raise US$ 10 bn through the IPO, thereby implicitly valuing this social media giant in the region of US$ 75-100 bn.
The immediate question that probably comes to one's mind after getting into the numbers could be - Is Facebook really worth US$ 100 bn?
For one, if the company does manage to pull off the IPO at the desired valuation it would join the elite league of largest public companies like McDonalds and Amazon.Com. However, note that one of the companies here is a direct consumption play (McDonalds) while the second one (Amazon) offers a channel for consumption play. Both are sound business models in itself. However, Facebook is a social networking site mostly dependent on advertising revenues. Secondly, the popularity of such businesses can change at a drastic pace depending upon the changes in perception. Remember Orkut? Hence, taking a longer term call on such businesses is extremely difficult.
Further, with the company being private there is little financial information available for the prospective shareholders to appropriately value the same. Thus, the valuation of US$ 75-100 bn does raise eyebrows. Hence, investors should be extremely vigilant before they become a part of such hysteria - Be it Dalal Street or Wall Street. If not they will have to burn their fingers later. Remember the Reliance Power IPO?
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