Analysis: Facebook IPO tests easy growth assumptions

Thu Feb 2, 2012 1:14pm EST
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By Alexei Oreskovic and Alistair Barr

SAN FRANCISCO (Reuters) - As Facebook hurtles toward one of the largest initial public offerings in U.S. history, its honeymoon with investors may already be over.

The dorm-room project started by Harvard dropout Mark Zuckerberg, 27, could well become one of the world's most highly valued Internet companies when it sells shares to the public for an expected valuation of as high as $100 billion.

But the relatively carefree days of super-charged user growth may be behind Facebook, analysts say, as the social networking company begins the difficult task of living up to Wall Street's lofty expectations under a public microscope.

Facebook's IPO prospectus, filed with U.S. regulators on Wednesday, revealed a profitable and fast-growing business built upon advertising revenue and online transactions.

But the Silicon Valley company's $3.7 billion in revenue last year was at the low end of analysts' expectations and underscored the wide gulf between its current business and the most optimistic hopes that many investors have riding on it.

"For the valuation that people are going to be paying for this name, they're going to probably be overpaying by a third because of the optimism related to just the name," said Michael Yoshikami, chief executive of YCMNET Advisors, a California-based wealth management firm.

"The numbers justify maybe a $50 billion number," he said, referring to Facebook's valuation.

Facebook's revenue growth rate - roughly 88 percent in 2011 - would justify a $65 billion valuation, Yoshikami noted, which is far short of the $75 billion to $100 billion that sources have said the company is looking for.   Continued...