Stephen Foley: I'll stick my neck out on Facebook


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The Independent Online

US Outlook One of the older and wiser writers on The Independent tells her young protégés that the first rule of column writing is: never make a prediction. I'm going to break her rule not once but twice in the next few lines.

First, I predict that Facebook shares are going to price crazy high and go crazy higher when they start trading at the end of this week. That's a pretty safe bet, you might think, given the mania around its roadshow, where wannabe investors queued round the block to get in; given that analysts are already publishing "buy" notes on the stock, an unusual thing to do before a flotation but which they say is in response to investors' demand for research; and given that a friend of mine who says "I don't know how this stock thing works" is nonetheless thinking of trying to get in on Facebook on the grounds that "I let my Dad talk me out of buying Apple stock at $85 in 2008".

Second, I predict that whatever happens on Day One of trading will be as nothing compared to how high the shares eventually get. I am certainly not suggesting anyone put anything other than spare gambling money into Facebook, because the risks are manifold. It has not yet proved a business model that would justify a $100bn valuation or anything close, and there is the risk that advertising on Facebook will turn out to be less effective, less popular and less expensive than it is now, not more as the company expects. But I do not believe Facebook will go the way of MySpace, given how ingrained it is in our lives, and I think that the company and wannabe investors are downplaying the second of its two revenue streams, namely the cut it takes of payments for and through apps on its site. So far most of that comes from silly Zynga games like FarmVille; in the future, Facebook could become a fully fledged marketplace for digital and offline content and for businesses not yet invented.

So there you go. Two predictions. And yes, I am aware that by making the second, I'm doing my little part to make the first come true.