What Facebook May Not Want You to Know as it Prepares to Go Public

This has been a spectacular year for Facebook. Its founder Mark Zuckerberg was named Time magazine’s person of the year, a movie made about its beginnings was both a critical and financial success, membership grew to half a billion and that doesn’t include an estimated billion and a half Chinese waiting in the wings to cross their Great Wall to post on yours.

Then came word that despite comments to the contrary Facebook just could become a publicly traded company by the end of 2012. It has been valued as high as $50 billion ever since trading on a secondary private equity market caught the attention of the Securities and Exchange Commission (SEC) who began looking into its so-called private status that requires it to have less than 500 shareholders. That valuation has been called into question however since it’s about 25 times the company’s revenues and around 140 times its earnings.

Still, sites like SharesPost and SecondMarket have been selling what they say are shares of Facebook to so-called "accredited" investors. They are defined by the SEC as having at least $1 million in net worth (not including their primary home) or $200,000 in annual income.  Word about a possible IPO accelerated after Goldman Sachs began making a private offering in Facebook to its wealthier clients.

All this has left most of us out in the cold in terms of benefiting from an investment in what could be the hottest social networking company in the world. But now some analysts are saying expectations are already so high that most of the future gain already may be gone.

Less than seven years after its launch, Facebook has an estimated $2 billion in annual revenues, nearly triple its sales from the year before. However, analysts are quick to point out that social trends online are completely unpredictable. If a new trend comes along that's really engaging to people and a different way of interacting, then Facebook could become the old way of social networking. Or one or two  problems such as Facebook members having their identities compromised or abused, both of which have already occurred to a certain extent, the members could begin looking to a more safe and secure place to correspond with their new online “friends.”

Even if revenues continue to grow and Facebook ends up as the world's largest company, starting at the price already set for it, it isn't likely to end up as one of the world's best investments.  Add to that a few pieces of information the social networking giant may not want you to know about, such as:

• Some recent developments compromise user privacy. For instance, you can share online content with Facebook friends using the "Like" button. But press it or not, if you're logged in to Facebook while surfing, it will know when you visit any site with social plug-ins. Nicole Ozer, a policy director at the ACLU of Northern California, says Facebook can essentially track you around the Web. Facebook makes all such policies known to users, but critics wonder how many people are paying attention. Facebook said it stores users' Web-surfing data for no longer than 90 days.
• In August, Facebook launched Places, a tool that lets you "check in" at real-life locations, such as restaurants and concert venues, with the help of the GPS on your smartphone. The idea was to let friends know where you are. Though just 4% of Americans use location-sharing services, critics warn they can make users vulnerable. One lets users register virtually any location with the service, even someone else's home or office; the other lets friends check you into locations unless you disable the setting. That means other Facebook users may know where you live or where you are, even if you haven't posted that info yourself.
• A major and growing problem is that it's increasingly common for scammers to steal passwords and other sensitive data by imitating trusted sources, a practice known as phishing. Facebook is now the third most targeted brand on the Internet. According to monitoring service PhishTank, an impostor uses your account to message your friends to, say, ask for money, claiming it's an emergency. Something similar actually happened to me when someone posing as me sent a holiday card and update to all my friends and when they opened it said they were now infected with hundreds of viruses and tried to sell them bogus and infected software to clean it up.
• Phishing could become an even bigger problem on Facebook as more users play online games, purchasing virtual goods and currency via credit card. Chester Wisniewski, security adviser with antivirus firm Sophos says stolen card data is lucrative so if you make purchases online, use a credit instead of a debit card, since it can be easier to reverse fraudulent charges. He also recommends password-encryption programs like LastPass.
• Social networking offers new ways for businesses to connect with customers, and these days many companies create Facebook pages where those who sign up as "fans" can hear about the latest products and deals.  But social media can also cause trouble for businesses. For one, it makes it easy for consumers to organize and complain. When Gap released a new logo there was a flood of negative discussion on its Facebook wall, prompting a quick retreat to its old logo.
• Facebook can cause both personal and professional problems. Employers may search job applicants' Facebook profiles, and families can do their own snooping.
• Facebook launched a platform letting software developers build applications, or apps, that run on the site. There are now more than 550,000 available, ranging from horoscopes to fantasy football. Critics say Facebook should do a better job of policing errant app developers, like those recently caught selling user info to a data-collection firm, a violation of Facebook's rules. Facebook says it is cracking down on such violators; it has also introduced a technical fix to help keep user data from getting shared inadvertently.
• Despite Facebook's surging popularity, it doesn't have a monopoly on social networking. In the U.S., there's MySpace (which is owned by News Corp.), Twitter and location-sharer Foursquare. The start-up Diaspora calls itself a "privacy-aware, personally controlled" social network—in reference to the privacy concerns surrounding Facebook. Google, meanwhile, is integrating social features into YouTube and other services and may release a stand-alone rival to Facebook.
• Its toughest markets may be abroad. In Brazil, Google-developed Orkut had almost 32 million visits in September, compared with Facebook's 11 million. According to market researcher comScore in Japan, social network Mixi had nearly 14 million visits that same month, versus Facebook's 5 million. Then, there’s China. Zuckerberg paid a visit to the Chinese recently, but as we all know, the Chinese are just as likely to create their own version of Facebook, just as they did with Baidu, their version of Google.

All of this leads us to say, if you haven’t been able to get in on the investment craze for Facebook yet, you shouldn’t worry too much. There will be other opportunities and Facebook may have already peaked before it even had a chance to leave the IPO gate. The last time stocks sold for 140 times earnings was during the tech bubble of the 1990s. Remember how that turned out?