Analysis: A sobering look at Facebook

It's the year's hottest initial public offering, but some wealth managers find themselves having a hard time recommending Facebook to their clients.

The world's biggest social network is expected to seek a USD 75 billion to USD 100 billion valuation in its IPO, the most anticipated stock offering from Silicon Valley since Google Inc went public in 2004.

At Granite Investment Advisors in New Hampshire, Chief Investment Officer Scott Schermerhorn has already been fielding queries from clients eager to get in on the action.

"We had some clients call and once we step them through the numbers, they sober up," he said. "The valuation is 100 times earnings in a stock market that is trading at 12."

"At the end of the day, if you have a small amount of money that you are in a position to lose a chunk of it and you want to speculate on Facebook, go ahead," he added. "But don't use money that you really need to save to do it. I would put it in Microsoft, which is dirt cheap right now."

To be sure, most technology analysts would argue that Facebook's growth potential far exceeds that of Microsoft Corp , whose stock has largely traded between USD 20 and USD 30 in the past decade. It is taking its first steps toward content streaming for instance, and has yet to make a serious overseas thrust.

And a USD 100 billion valuation for Facebook at the top end - while huge in absolute terms - is not that out of whack in Silicon Valley IPO tradition. Facebook is seeking a multiple of up to 27 times annual revenue, or up to 100 times earnings.

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