Facebook IPO: is social network really worth $100bn?

FACEBOOK is today expected to take its first step towards becoming a public company by filing paperwork with regulators. The impending initial public offering (IPO) has been met with great enthusiasm among investors, who see it as the most exciting tech IPO since Google floated on the stock market in 2004.

However, there is no shortage of analysts who question whether Mark Zuckerberg's company is worth its massive $75bn-$100bn valuation.

Peter Cohan says on Forbes that Facebook is "grossly overvalued". He points out that the company's shares have been traded privately for years on a secondary market called SharesPost. The valuation there is currently $73.4bn.

Getting a bit more technical, Cohan observes that if Facebook's revenue is taken into account, its theoretical share price is 497 per cent higher than Apple's and 294 per cent more than Google's. Whether you believe Facebook shares justify such a premium is between you and your stockbroker.

Richard Harris, Chief Executive of Port Shelter Investment Management, casts his mind back to the late 1990s. He tells CNBC: "It reminds me of the huge dotcom bubble and this does seem to be harking back to the days of craziness where valuations are really high. But Facebook is a darling; everybody loves it, all the kids are on it and that's one of the reasons we're looking at valuations like this."

Even one of Facebook's co-founders is talking about bubbles - although he still believes Facebook's IPO could be the "largest in history".

Sean Parker, who first made his name with music-sharing site Napster, told CNBC: "To the extent that there is any bubble in technology at all, it is really a bubble around Facebook in the sense that there is a huge amount of pent-up demand among retail investors for access to Facebook equity."

Given the risks of a spectacular anti-climax, it is worth asking why Facebook is floating at all. Another drawback of listing on a stock exchange is the extra scrutiny that comes with being a public company, including the compulsory publication of financial details.

The Guardian points out that Facebook had to float because it has too many investors to remain private. But the company also hopes to raise between $5bn and $10bn in cash. It is thought that the social network is likely to spend some of the money on improving its smartphone offerings. There is also the possibility that it will snap up any innovative internet start-ups it believes have potential.

Whatever happens in the months after its IPO, Facebook for now can take comfort in precedent. When Google floated in 2004, there was similar scepticism about its value. Back then, a Google share cost $84: today they're trading at $580 each. ·