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The $100 Billion Network

By: Daniel Pereira
Posted: 6/13/2011 7:53:00 AM
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A new report from CNBC - citing " people familiar with the matter" - suggests that Facebook will go public next year with a valuation north of $100 billion.

The value of Mark Zuckerberg's social networking company continues to rise - just six months ago, Goldman Sachs invested in the firm at a valuation of $50 billion. Then, the investing firm General Atlantic bought in at the $65 billion level. According to CNBC, the most recent transaction on SharesPost, a platform for trading shares in companies that are still privately held, saw 100,000 Facebook shares trade for $3.4 million, suggesting a total value of $85 billion.

Can a company where user base growth is slowing  really be worth so much? 

There are reasons to suggest that it can. Facebook, after all, represents the world's largest data-mining network, holding a veritable Fort Knox of consumer information that is the envy of marketing executives everywhere. It has the advantages of both targeting ads precisely at users' self-defined tastes and using each member's social network to spread offers and campaigns virally and organically.

Of course, Facebook is also benefiting from the buzz around other initial public offerings, notably LinkedIn 's (LNKD) and the upcoming Groupon flotation. Investor appetite for new web-based companies continues to grow, but the supply of new IPOs remains constrained. In the tech bubble at the turn of the millenium, small speculative ventures went public as soon as possible, saturating the market. The market now faces the opposite dilemma, with companies acting far more cautious about their IPOs.

Facebook still has some challenges to overcome, including overseas competition, slowing growth in its core markets and persistent problems with privacy violation and  overreach

Still, of all the high-profile companies yet to go public, Facebook clearly looks like the strongest candidate. With an incalculabe store of data on nearly 700 million users, a pervasive cultural presence and mass penetration in the youth market, it's hard to see how this IPO could go wrong - unless the broader market sentiment completely implodes in the next year.

In the David Fincher/Aaron Sorkin film The Social Network , hacker-capitalist Sean Parker quips that it isn't a million dollars that's cool - it's a billion. How much cooler, then, will $100 billion be?