Facebook's IPO is light on guarantees, heavy on risk

So Facebook is set to go public today. It's the most anticipated initial public offering since Google in 2004, and may net the Menlo Park, Calif. social network between $5 billion and $10 billion, according to estimates. That said, I am still lost as to how Facebook's going to be able to wow Wall Street from quarter to quarter, and we all know that's what investors (and the tech press) are looking for.

The IPO will cause pandemonium on the floor of the New York Stock Exchange, as investors attempt to cash in on one of the most successful Web companies in history. This type of market hysteria is prone to pitfalls: fellow social networking site LinkedIn saw its shares skyrocket to nearly $95 in the first day of trading from an IPO of $45, but it has since given back about half of those gains.

IPO or not, does it matter to Facebook? Not really -- as a private company Facebook is a huge success, and made CEO Mark Zuckerberg a billionaire. With an estimated net worth of $17.5 billion, he is the 14th richest person in the world according to Forbes as of 2011. An IPO only will greatly increase his wealth, and those around him.

That's the only guarantee here surrounding Facebook's debut on Wall Street.

Going public has its drawbacks. As a private company, Facebook is able to do as it pleases -- only having to answer to itself internally. This changes when you're dealing with investors. They demand results, and you may find yourself making decisions to keep them happy, and to pad the results you're now required by law to publicly release every quarter.

That in mind, here's a point to ponder: with Facebook now home to over 800 million users, how much bigger can the site really get? Facebook is going to hit that mythical "brick wall" sooner or later. There are quite a few people who aren't interested in sharing their life's details. The site's growth is finite.

This may not be more vividly illustrated than by the growth of its competitors. Google+ reached 100 million users in just six months, a feat that Facebook took four years to accomplish. That shows the fickleness of Web users: no Web properties' success is perpetually guaranteed.

One last issue, and that's revenues. While Facebook has a significant user base and has focused on generating a steady revenue stream through its growing advertising business, few options remain for additional sources of income.

A good deal of time has been spent on developing new methods of advertising, but as a rule of thumb social ads have poor click-through rates. Unless Facebook finds the holy grail of social advertising, it's unlikely that Facebook will grow revenues here dramatically.

Another possibility? The company could also move into the entertainment business, selling and/or renting content to users. Such a setup will keep users on the site even longer, however it requires a great deal of work and overhead to be done properly, with no guarantee of success. There's also the 800-lb. gorilla in the room -- iTunes -- which controls a good portion of the digital entertainment industry.

Are Zuckerberg and Co. willing to take such a risk for something that seemingly has a high chance for failure, and could cost more money than it's worth? That looks doubtful.

I'm curious: BetaNews readers are generally a thoughtful and opinionated bunch. Now that Facebook's headed for life as a publicly traded company, revenues are extremely important. What do you think the world's biggest social network can do to generate more revenue? Let us know in the comments.

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