Facebook IPO: Don't touch this

I'm rooting for Facebook, I really am, but this is one IPO investors shouldn't touch.

It's not about Mark Zuckerberg's hoodie (good for him!), or his age (Michael Dell, Bill Gates and Steve Jobs all had high-profile companies at younger ages), or social networking being a fad (because it's not).
It's two things:

1. Facebook's recent quarterly numbers do not show the type of growth that companies looking to command a 20-25x sales premium should show. Growing revenues at 30% to 40% per year would be terrific for most businesses, but in this environment, that should command a multiple of more like 6-8x sales, not 20-25x. Perhaps the law of large numbers is already catching up to Facebook. After all, revenues were in excess of $4 billion last year. Or, more likely...

2. Facebook isn't run as a profit/revenue-maximizing company. Zuckerberg said as much in his letter to investors: "We don't build services to make money; we make money to build better services." Craigslist and Wikipedia are both fantastic websites, but what would you pay for them as an investor? Surely Facebook will make some money, but with so many well-run businesses out there trading at compelling valuations, why take a flier on a growth company if you're not sure the CEO is in your corner? Why do you think Zuckerberg will treat you any better than he treated Eduardo Saverin?

***

Editor's note: This week's column was written by Conor Sen, who is currently a private investor and recently spent more than four years at a multi-billion-dollar West Coast-based hedge fund. To read nine other expert opinions about the Facebook IPO, go to Minyanville.com.