By Peter Bo Kiær, Equity Analyst at Saxo Bank
We might just be hours from getting some information from
Facebook about a possible IPO.
The market expects astronomical valuations for the king of
social networking services - and like IPO valuations from LinkedIn,
Groupon and the acquisition of Skype by MSFT, Facebook's estimated
value will be more or less based on rough guestimates from analysts
about the future.
Facebook might be a great investment opportunity - or it
might be the next Pets.com. Before you invest in Facebook, make
sure you have solid answers to these questions.
Revenue
1. How does Facebook generate revenue - what
is the business model?
a. What different streams are
there?
b. Are there new streams? What
are the plans for the years ahead?
2. Growth: What are the plans to increase
income?
Users
1. Facebook now has 800m users, according to its
management.
a. What is the age
composition?
b. Gender?
c. Where are the users located?
Asia, Europe, etc.?
d. How's the growth been in
each of the segments and regions?
2. What is the churn?
a. How many people have closed
accounts?
i. We
get the net users but give us gross and net numbers!
b. How many are
dormant?
i. 1m
ii. 1-3m
iii. 3-6m
etc
c. What is the probability of a
client becoming active when dormant for a period?
d. Is there a particular
segment of users more likely to become dormant?
3. User growth
a. What are the plans for
future growth?
b. Is the growth opportunity
emptied out?
c. Is the business model Anglo
Saxon?
d. How is the progress in Asia?
Are there plans to conquer new regions, like China,
where
other social
networking services are currently entrenched?
Management remuneration
1. How's management going to be remunerated
going forward?
2. Is this aligned with stockholders?
Regulation
1. There are new EU privacy regulations on the
way. How will this and other privacy regulations
affect Facebook?
2. What is the consequence of deletion of historical
data when a user deletes a profile?
The answers to these questions will help determine if
Facebook is a great investment opportunity - or if IPO
investors will be buying in at its peak.
This article comes from 
Equity Theme:
Questions you should ask before buying Facebook shares
