Can Facebook justify its $100 billion valuation?

(CBS News) SAN FRANCISCO - Facebook set a healthy price Thursday for its first stock offering to the public. The social network will be valued at $38 a share when it goes on sale Friday. That would value Facebook at more than $100 billion -- the biggest valuation of an American company eve at the time of its initial public offering. Is it worth it? CBS News correspondent John Blackstone took a look.

Facebook has attracted 900 million users in less than a decade and made a billion dollars last year. Now it needs to prove it could be worth a hundred billion.

Bo Fishback is CEO of Zaarly, an online classified section. "I think five to 10 years is an eternity in our world," he said. "And some of what Facebook looks like today -- I don't know -- looks a little bit like AOL looked in the late '90's."

In the late '90's, America Online was the darling of Wall Street, valued at over $160 billion when it merged with Time Warner. But by 2010, AOL lost 86 percent of its subscribers and is now worth $2.6 billion.

"The bigger you get, the harder it is to go fast," said Fishback. "But so far, Facebook has done an incredible job."

Facebook makes 80 percent of its money from advertising, or about $4.34 per user. But to justify the $100 billion valuation, analysts say ad revenue needs to rise to several hundred dollars per user.

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Companies are split on Facebook's potential. This week, General Motors announced it would stop paying Facebook for ad space, but Ford said Facebook ads were effective.

Paul Saffo, who writes about technolog trends, said Facebook is smart enough to know its future depends on more than advertising.

"Facebook's long-term goal is to try and be the gateway to the Internet," he said.

Here's how: If Facebook has its way, it will be like a clubhouse where people go first, sign in with just one password, and get directed to thousands of websites tailored to user profiles, likes and dislikes.

"Has Facebook become kind of like a driver's license for the Internet?" Blackstone asked Fishback.

"I mean, I think they're working on it," he said.

As it grows toward a billion users, Facebook's potential reach is undeniable, much like television in the early 1950s. There were doubts TV could ever make money but people figured out how to turn it into a business.

"And the same thing is true today about social media: 'Don't worry, they'll figure it out,' said Saffo.

But the San Francisco/Silicon Valley region is filled with fast moving young companies. Facebook will have to figure it out before some small start-up does.

  • John Blackstone

    From his base in San Francisco, CBS News correspondent John Blackstone covers breaking stories throughout the West. That often means he is on the scene of wildfires, earthquakes, floods, hurricanes and rumbling volcanoes. He also reports on the high-tech industry in Silicon Valley and on social and economic trends that frequently begin in the West.

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