Five Reasons a $100 billion Facebook Valuation is Nuts

Facebook is inching closer to an initial public offering. Today, AllFacebook notes a speculative CNBC report that pegs the social network’s valuation, in the event of an IPO, at around $100 billion. It could even go higher. The SEC filing could come as early as October, and Facebook will have to disclose its financials by April of next year whether it goes public or not. All this means that it’s time to put some very serious thought into how much Facebook is really worth.

This year, Facebook’s implied valuation has surged from $50 billion, based on an equity deal with Goldman Sachs, to $85 billion, based on trading in private markets like SharesPost and SecondMarket. And while these aren’t robust marketplaces, which calls the resulting valuations into question, optimists will recall that LinkedIn left its pre-IPO valuation in the dust last month.

But, $100 billion? More? That’s a tough one to swallow.

There are several reasons why Facebook may not be ready for prime time yet. Let’s take a look at five of them:

1. LinkedIn didn’t tell us anything definitive: yes, the business-focused social network surged relative to its SecondMarket and SharesPost valuations when it debuted on the New York Stock Exchange. And, it remains higher than its pre-IPO valuation. That said, it’s an older company with multiple revenue streams and has even been in the black. Facebook isn’t there yet, which means that LinkedIn’s performance isn’t much of a benchmark.

2. Facebook has to do something about saturation: the latest monthly active user count for Facebook is up to around 687 million, but the company is said to be losing ground in established markets, with emerging markets delivering the growth. The declines in the United States, United Kingdom and Canada aren’t a big deal right now, but when Mark Zuckerberg has to answer to equity analysts, he’ll need to have a compelling story when issues like these arise.

3. The revenue situation still isn’t sorted out: Facebook is set to bring in more than $4 billion in ad revenue this year, and that will comprise more than 90 percent of its top line, according to industry estimates. This could be too big a risk factor for many institutional investors. Facebook really does need more revenue streams – and they have to be serious, not single-digit products. It’s tough to see this as a $100 billion company with the overwhelming majority of its revenue coming from one place.

4. There could be secrets waiting to come out: everybody was excited about the prospect of a Groupon IPO until the filing occurred. Then, stories of hefty founder cash-outs and incredible quarterly losses emerged. What’s under the hood at Facebook? We don’t know yet, but at this stage of the game, it’s probably best not to play the speculation game on valuation until the company files with the SEC.

5. There’s still a long way to go: Okay, CNBC reported that Facebook could file for an IPO as early as October. Previous speculation has hinged on April 2012, when Facebook has to disclose its financials as a result of SEC rules. So, an IPO could come somewhere in between. Until the opening bell rings, a lot can happen.

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