Getting a piece of the Facebook initial public offering action would seem like the surest of investments. The online social network has head-and-shoulders more daily users than any other, with 540 million. No company comes close to having as much detailed personal information about those who use its services as a basis for advertising revenue. But no matter how sure-fire its potential may seem, there are as many reasons to be wary about investing as there are for leaping in.
Taking a detached look may be difficult given the hype surrounding Silicon Valley's biggest-ever IPO offering, set for May 18. Having so many users makes for enormous potential and each new acquisition by co-founder and CEO Mark Zuckerberg opens possibilities. Facebook fever is so high that even the price range of between US$28 and US$35 a share - which would value the eight-year-old company at up to US$96 billion - has not dampened appetites. The extra US$10 billion or so that will be raised will whet expectations of the firm becoming a hub for advertising, e-commerce and everything in between.
That the company's last quarterly profits were down has not put off potential buyers. Facebook cautions in its IPO prospectus that 'rates of user and revenue growth will decline over time'. That is inevitable the more popular it becomes, the greater its penetration into markets and with the emergence of new competitors. Nor is there apparent worry that under a dual-class arrangement, after the firm goes public, Zuckerberg, who will have just turned 28, will have 18.4 per cent of the stock, but control 57.3 per cent of the voting power.
The management challenge of jumping from an internet start-up to a giant is daunting, as will be finding a revenue stream beyond an over-dependence on display ads. But there are two greater potential problems ahead that should be of concern to more than investors - privacy and anti-trust. Mining personal data for cash while respecting users' privacy and resisting monopolistic urges will not be easy.