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Facebook: Under the Market’s Microscope

There could soon be a lot of celebrating at Facebook‘s California headquarters, with the leading social network ready to file for an initial public offering this week, according to The Wall Street Journal.

If that report holds true, going public could initially value Facebook anywhere between $75 billion and $100 billion, after what would be one of the biggest IPOs ever.

Anupam Palit, of GreenCrest Capital, estimates Facebook’s value at about $92 billion:

“When you think about Facebook, in a lot of ways we’re talking about the social media space and this sector – Facebook really defines the opportunity around this. We weren’t really talking about social media before Facebook came along. It’s the biggest company in this space and we believe what it makes it very unique from every other company that went public last year in this space is that it’s very, very profitable.”

But a potential IPO from Facebook comes at a time when other internet IPOs haven’t lived up to the pre-debut hype.

The performance of LinkedIn (NYSE: LNKD), Groupon (Nasdaq: GRPN) and Zynga (Nasdaq: ZNGA) shows that market enthusiasm often wanes after the IPO – leading to speculation that Web 2.0 is overvalued, just like Web 1.0 was back in the late 1990s.

For Wall Street, it all comes down to the numbers. Facebook says it has over 800 million users worldwide. That’s a lot of eyeballs for potential advertisers.

And that means money in the bank for Facebook, something web companies didn’t have during the tech IPO frenzy more than a decade ago. Palit says:

“When you tell someone like Facebook that you like skiing for example, or that you like music, or like a particular shoe, they can take that data, package it up, sell specific demographic data to advertisers, and advertisers can pay Facebook to target specific audiences. So what they’re able to do is sell advertising in a way that nobody has ever done before.”

But just because nobody has ever done it before doesn’t mean Facebook is the only one that can do it. Cash-rich Google (Nasdaq: GOOG) is busy building Google+, its social network. Micro-blogging website, Twitter, is also seen as a threat.

Analysts quickly point out that Facebook has to continue to innovate in order to stay ahead of technology that may not even be out there yet – or find itself the next MySpace, a hot property that quickly cooled.

(For Wall Street Daily’s take on why the Facebook IPO might not be all it’s cracked up to be, check out Louis Basenese’s recent article, “Three Reasons to Avoid the Facebook IPO.”)