Should you buy Facebook shares? Probably not

FACEBOOK finally took the first step towards becoming a public company yesterday by filing its IPO papers. The company is expected to be listed on an as-yet unnamed stock exchange in May. Facebook's IPO papers have revealed a wealth of information about the company, including its profits and what it sees as the risks to its business.

But the big question is: should you buy Facebook shares? Here are a few reasons why you should - and a lot of reasons why you should not.

WHY YOU SHOULD BUY FACEBOOK:

Facebook is making lots of money

Facebook's profits have more than quadrupled in the past two years and the company made $1bn last year. Revenue in 2011 increased 88 per cent to $3.71bn. The company has overtaken Yahoo! in advertising, which accounts for about 85 per cent of Facebook's revenue.

Everybody wants a slice of the action

It is difficult to exaggerate quite how excited investors are about the Facebook IPO. It's not just that they believe they will make lots of money: they also hope it will be a shot in the arm for the tech sector and will encourage investors back to the stock market.

Experienced management

Facebook may have a 27-year-old CEO in Mark Zuckerberg, but its other top execs have the experience to make the IPO a success, the LA Times reports. The chief operating officer is Sheryl Sandberg, a former Google executive, and the chief financial officer is David Ebersman, from biotech giant Genentech.

WHY YOU SHOULDN'T BUY FACEBOOK:

Facebook is overvalued

Even before Facebook revealed its profits in its IPO filing there were many analysts who thought the company's valuation range of $75bn to $100bn was too high. Following yesterday's announcement, Michael Yoshikami, CEO of YCMNET Advisors, told Reuters that investors were definitely going to be overpaying. "The numbers justify maybe a $50bn number," he said.

Plebs will NOT make money

"Facebook's IPO will make some bankers, some venture capitalists, some privileged early investors, and some early employees rich. Everyone else should steer clear," writes Molly Wood on CNet. She explains that bankers will have priority in the share sale and that normal investors will have to wait months for their chance. As Gizmodo observes: "Shares will be available eventually, of course. Just as soon as the stock's risen enough that the big dogs feel comfortable cashing out."

Mass retirement

A large number of Facebook employees own shares and are likely to become very wealthy when the company floats. Facebook itself admits that it may struggle to motivate or retain such staff. Facebook HQ might be a fun place to work, but does it beat life as a playboy?

Privacy

Privacy could one day be Facebook's downfall. The company admits in its IPO filing that it may run into trouble with regulators and its own users over the issue. The social network has already been called out by the Federal Trade Commission for making customer data public, and has agreed to a privacy audit every other year for the next two decades. Facebook says future investigations "could cause us to incur substantial costs or require us to change our business practices in a manner materially adverse to our business".

Hacking

Facebook, with its wealth of detailed customer data, is a big, juicy target to hackers – and any breach of security could prove disastrous. As Facebook writes in its IPO filing: "Because of our prominence, we believe that we are a particularly attractive target for such attacks... [which] may harm our reputation and our ability to retain existing users and attract new users."

Facebook: the next MySpace?

Facebook admits: "We anticipate that our active user growth rate will decline over time... A number of other social networking companies that achieved early popularity have since seen their active user bases or levels of engagement decline, in some cases precipitously." As The Wall Street Journal comments facetiously: "Cough, cough... MySpace, or Friendster."

Bono

Yes, Bono owns 1.5 per cent of Facebook shares – worth roughly $750m. He's going to make a lot of money from this IPO; do you really want to help him make more by pushing up the price? ·