Why Investors Should Wait Until Facebook's Value Becomes Clearer

| About: Facebook (FB)
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Facebook's (FB) IPO is one of the most anticipated IPOs in history. There have been many articles, analyses and discussions months ahead of the actual IPO. Interestingly, most analysts are very skeptical about the valuation of the company. For example, Seeking Alpha published 62 articles focusing on Facebook in the last 3 months alone, and most of these articles were bearish about the company.

There were many arguments and discussion points about Facebook's IPO to attempt to explain why the company is overvalued even before its exact market value is known. One of the arguments is that Facebook is just a temporary fad and that it will not continue to be popular forever. Another argument is that the company's recent profits are less than impressive. A third argument against buying the company is that there isn't much room for the company to grow as everyone in the world with an internet connection has already heard about the website, and those who are likely to be interested in joining the website have already done so by now. These may be all strong arguments, but one thing is missing from these arguments.

One thing that never gets mentioned in these bearish articles is the true assets of the company. The database owned by Facebook is potentially worth a lot of money, and the company is currently utilizing only a small portion of this potential. This also means there is plenty of room for Facebook's revenues and profits to grow even if the website's number of active members don't go up. In fact, the website's active membership increased by 30% in the last year, and the trend is likely to continue for the next several years.

Let's face it, the website has nearly 1 billion members who log in to the website at least once a month. Every day, 250 million pictures and over a billion comments are uploaded or transmitted in this website. The company knows so much about so many people, including their age, gender, location, friends, hobbies, phobias, favorite things and so on. No company in the history ever had this much information about humanity before, and it is even scary to some. The fact that the company holds plenty of data regarding every 6th person in the world can add billions of dollars to its value. The company can expose people to very specific, targeted ads, increasing the efficiency of such ads significantly.


Facebook's assets, particularly its database, is nearly impossible to value. The company holds one of the most valuable databases in the world, and its ability to utilize this database for profits will determine its profitability in the long-term. While I'm not totally bullish on Facebook, I don't agree with those that are totally bearish on the company either. I believe that Facebook has a lot of potential and it may become a good investment if this potential is realized.

I suggest investors to wait a couple quarters after Facebook's IPO to see how the company is performing before buying this company.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.