With Facebook set to debut Friday, investors have to weigh whether the social networking company's initial public offering will be as big as some think or another tech bust.
If the Facebook IPO is to succeed, it will have to overcome a less-than-stellar history of similar technology offerings that started quickly out of the gate but faltered shortly thereafter.
The offering is expected to raise more than $15 billion, making it the eighth-largest global IPO ever and give the company a market value of $77 billion, the most ever for a U.S. company at the time of its IPO, according to Dealogic. Those number are based on the middle of the expected range, so if Facebook prices higher than $38 top limit, those numbers will get even larger.
But by now names like Zynga, Groupon and even Pandora are familiar as companies that were supposed to be the next big thingbut showed little staying power once the initial euphoria wore off.
Indeed, the challenge for the ubiquitous social networking Web site is to be a game-changer.
"Everybody is thinking about the year 2000: Are these real companies, or is this the tech bubble all over again?" says Nadav Baum, executive vice president at BPU Investment Management in Pittsburgh, Pa. ""Everybody's on Facebook. But how are they going to make money?"
The accompanying graphic looks at how some of the tech IPOs have performed recently.
Baum describes himself as a "bricks-and-mortar guy" who prefers market stalwarts like Johnson & Johnson and Coca-Cola — old-economy companies that literally have generations of success to back up their company profile.
But he's willing to take a shot at Facebook if it can prove that it's not just another face in the crowd of hot-shot technology ideas that failed to have a sustainable revenue stream, a la the kinds of companies that popped the dotcom bubble more than a decade ago.
"I need to see a couple quarters of earnings to see if they are real," Baum says. "I get it, it's a cool company. But when it gets back to investment, it may be a great company but can they make money and is it truly the next wave of how social media companies are going to make money?"
The issue, then, will be whether Facebook is the next Zillow or the next Google — or even a LinkedIn , which has seesawed back to gains but trades at a gaudy 750 times earnings.
One thing Facebook has shown is a revenue stream, though some investors are worried that the first quarter of 2012 showed a modest slowdown. CEO Mark Zuckerberg also hasn't earned points lately with his out-of-the-blue $1 billion deal to buy photo-sharing app Instagram, and what some considered a bit of a cavalier attitude during the Facebook IPOroadshow.
"Facebook likely is a potentially different circumstance because of the expected size of it," says Rick Bensignor, chief market strategist at Merlin Securities in New York. "I don't know if we can look at all the rules we looked at in the past — if this is just another IPO or if this is something different."
The best-case scenario for Facebook could be something different, and beyond.
The market badly needs a savior now as the European sovereign debt crisis has intensified, the employment recovery in the U.S. suddenly looks derailed, and stocks are in the second mini-correction of the spring.
"See what happens after the initial hype, also which way the market's going at the time, too," Bensignor advises. "If the market happens to be in the midst of a correction here, you may very well see the initial hoopla (over Facebook) push it lower."