Facebook Users: You Are The Product, Not The Customer; Don't Be Fooled

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Alas, the long-awaited social-networking event is here: the Facebook (FB) IPO. But will investors late to the game make money in the firm over the long haul? We're skeptical.

For starters, we're less-enthused about the prospects of investing in the social-networking giant due mainly to anticipated, speculative demand from the retail investor and a potential buy-at-any-price mentality. Still, the event has certainly piqued the interest of the social-networking nation -- even more so, in our opinion, than LinkedIn's (LNKD) initial public offering a number of months ago. Having increased interest in the equity markets isn't necessary a bad thing, but it does mean we'll probably witness a huge (and maybe unprecedented) post-IPO pop when Facebook begins trading (the investment banks are notorious for mispricing offerings to reward loyal clients). This, in our opinion, will drive prices to unsustainable levels. We strongly caution investors interested in picking up a few shares of Facebook post-IPO that the risk/reward will probably be tilted against them, and we fully expect a valuation disconnect (read "bubble") relative to its intrinsic value to grow materially over time.

Estimated to be worth more than $100 billion -- or about the size of McDonald's (MCD), or looked at another way, the size of Ford (F) and Boeing (BA) combined -- Facebook has a lot to do to justify such a high price tag, in our opinion. We doubt most of the 800+ million monthly active Facebook-users care to click (or even notice) the display ads (which generate 85% of the firm's revenue) on their respective pages. General Motors (GM) seems to agree, as it recently pulled its advertising with the social-networking giant.

In this light, we question the long-term benefits to marketers compared to more targeted ads offered by search-engine Google (GOOG), for example, where users go to

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