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Facebook IPO Could Be a Game-Changer

Ian Wyatt

Facebook may be filing its long-awaited IPO this week, according to the Wall Street Journal. Rumors are swirling that the social media giant could file its initial public offering papers with the SEC as early as Wednesday. When it does, Facebook is expected to fetch a valuation of between $75 billion and $100 billion and raise as much as $10 billion. From there, the stock is tentatively scheduled to make its market debut sometime in the spring.

The Facebook IPO could have ramifications that extend well beyond the social network’s own bottom line. As I noted last week, the IPO market has been stagnant in the first month of 2012. Only three companies went public in January – the lowest number for the first month of the year since 2009. However, February appears to be starting with a bang. Eight IPOs are set to price this week; another nine are expected to price next week.

Still, IPOs struggled in 2011. Only two U.S. companies went public in September and October combined. Worldwide, 62% of all initial public offerings finished the year below their IPO price. Social media companies especially took it on the chin, as stocks such as Groupon (Nasdaq: GRPN) and Pandora (NYSE: P) dipped dramatically after being overhyped and overpriced early. If Facebook performs well after its IPO, it could help change the perception that social media stocks are all hype and no substance.

More importantly, the Facebook IPO gives the market as a whole some hope. If the stock can avoid a fate similar to some of its immediate social media predecessors – that is, plummet after achieving an overinflated IPO price – it could encourage other companies to jump in the IPO pool.

That won’t be easy given that Facebook is apparently striving for a valuation that would put it on par with McDonald’s (NYSE: MCD). At this point it’s unknown if the most popular social network in the world is even profitable. Given what happened to unprofitable social media stocks like Groupon and Pandora, that’s an important question the company must answer in the months ahead.