Is Facebook really worth $100bn?

We’ve all heard of it, and the chances are you are one of its 845 million active users. But does that mean you’ll be investing in Facebook? The social network, founded by CEO Mark Zuckerberg in his Harvard dorm room seven years ago, has been valued at $75-100bn while its initial public offering (IPO) is one of the most hyped flotations in years. But even those figures fail to impress some.

“It’s difficult to avoid the overwhelming conclusion that Facebook, at its IPO, will be way overpriced,” Mark Hulbert of MarketWatch writes in his most recent report on the social network.

“At its anticipated IPO later this year, Facebook will be three times more expensive than Google was at its IPO — nearly 40 times more expensive than the average large IPO of the last four decades,” he adds.

Hulbert is not alone. Thousands of column inches have been dedicated to analysing Facebook’s success as a publicly listed company since it filed its $5bn IPO registration documents with the Securities and Exchange Commission (SEC) on February 1 — the majority of which are unlikely to persuade the average investor to buy its stock.

The social networking site faces a slew of challenges as it looks to persuade its potential investors that it can make the transition from college startup (albeit a very big one) to a global giant that can stand the test of time alongside the likes of Apple and Google. Possible investors could include Prince Alwaleed, who said in an interview with CNBC that he would evaluate the stock once the firm goes public.

Zuckerberg, however, is confident that now is the right time. “We’re going public for our employees and our investors. We made a commitment to them when we gave them equity that we'd work hard to make it worth a lot and make it liquid, and this IPO is fulfilling our commitment. As we become a public company, we’re making a similar commitment to our new investors and we will work just as hard to fulfill it,” he wrote in his 2,173-word statement of intent.

A $5bn flotation would not only make Facebook one of the largest technology companies in the world but would also turn around 900 of its staff — including longtime employees and a graffiti artist who once painted Facebook’s office walls — into paper millionaires. It will also mean that its founder, who owns a 28.7 percent stake in the firm, will be worth $26.15bn.

That said, Facebook doesn’t need to float. As Zuckerberg says clearly states, the main reason is to allow investors to cash in on a portion of their earnings. Investment banks and financiers — set to make around $500m in fees from the filing — will also be pushing for a massive IPO.

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