Facebook IPO: is Facebook overvalued?

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Facebook plans to raise US$5 billion in an IPO that could value the company at US$100 billion. The eight-year-old company founded by Mark Zuckerberg could raise as much as US$10 billion with follow-on offerings.

A market cap of US$100 billion would make Facebook one of the most valuable companies in the world, on par with McDonald's.

The company sells highly targeted ads based on user-provided information. This helped Facebook earn US$1 billion last year on US$3.7 billion in revenue. By comparison, Google pulled in US$38 billion in sales and US$10 billion in earnings.

But on a price-to-sales basis, the market thinks Facebook is worth more. Does this mean the market thinks Facebook will win the internet?

Analysts expect Facebook's advertising revenue will grow just 52% to $5.8 billion this year and only 21% to $7 billion in 2013. That is still far behind Google.

What's more, Facebook is increasingly popular on mobile devices but doesn't display ads on phones and its capability to do so remains unproven.

Sales from virtual goods in games aren't much help either. Virtual goods produced just 12% of Facebook's revenue last year.