Facebook's 33% Chance of Success

NEW YORK (TheStreet) -- I ruffled some feathers recently when I suggested that the larger-than-life event known as the highly anticipated IPO of social media giant Facebook(FB) has been embroidered in hysteria and blown entirely out of proportion. As popular as Facebook has become, the exaggerated valuation defies logic.

Indeed Facebook is a good idea with a concept that is unequivocally successful. But not only does it have no business being compared to names such as Apple(AAPL) and Google(GOOG) , the company has yet to prove that it has a business -- at least one that is sustainable.

What Is the Value of Social Media?

Facebook said recently it earned over $1 billion during the first quarter while also reporting a 12% decline in net income from the year earlier. All of the decline was attributed to an increase in spending. While not entirely a huge concern, it does raise some red flags.

Fundamentally, how does one place a quantifiable value on social media -- a nontangible product? As a value investor, I have no answer based on fundamental analysis.

I have scoured recent IPO data from names such as Pandora Media(P) , Groupon(GRPN) as well as LinkedIn(LNKD) and what I've found were pretty mixed results. As with Facebook each of these stocks generated more than their share of interest from the stock market and -- just like Facebook - none had any discernible or sustainable business from which to fairly appraise value.

In assessing what to expect from Facebook as a public concern, we can look at these three names and ask, if we had to do it all over again, would we still have made the investment?

Pandora

On June 15, 2011 Pandora first went public. The stock opened at $20, reached the company's all-time high at $26 and finally ended its first public session at $17.35. Questions were raised regarding the company's ability to ever earn a profit since it had not been able to accomplish that feat the 10 years prior as a private company.