Following in the footsteps of planned IPOs (Groupon and Zynga) and fulfilled IPOs (LinkedIn and coming this Wednesday, Pandora), Facebook is allegedly planning to jump on the dotcom 2.0 bandwagon and file its own IPO some time in early 2012. While this news may not be surprising, the pegged company valuation figure of $100 billion (yes, with a "B") is causing quite a ruckus in the financial community. If this estimated valuation is accurate, it would value Facebook as a top-15 company in America, with only mega corporations such as Exxon-Mobil, Apple, and Microsoft beating it out. I've already given my opinion about Groupon's decision to file for an IPO (and why it's a horrible investment option), but the Facebook IPO is a different story.
The growth of Facebook, in both user base and revenue, has no doubt been substanstial. Facebook revolutionized online advertising value by bridging a massive user base (what Google perfected) with generating significantly more value per user via targeted advertising. By letting users essentially freely give up their interests (i.e. – the "Like" feature), Facebook figured out a way to acquire and compile lucrative data on each user's top interests and target ads based on each individual's interests. Do you "like" MLB? If yes, you'll get ads for tickets to your local team's games. Hip hop music more your thing? No problem, here's a targeted ad for the latest digital download from the top hip hop groups.
It's been this online advertising innovation, in addition to the ironic notion of feeling more intimately connected to each other via a computer, that has made Facebook a business and sociological phenomenon. And most importantly, unlike Groupon, Facebook actually generates profits from its revenue (which is estimated to be $2 billion for 2011).
Still, a 50X valuation definitely seems quite a bit risky, but many investors that remember the boom days of the late 90s and want a return to the glory days. With all the recent buzz about IPOs for all of these dotcom 2.0 companies, it could be hard to stay away from the seemingly inevitable bubble.
Stay tuned to pnosker.com for continued coverage of the dotcom 2.0 IPO scene, including breaking updates on the Pandora IPO that will kick off on Wednesday, June 15th.