Why I’m not buying Facebook

Think twice before “liking.”

FORTUNE — Facebook will probably price today at the top of its offer range at $38 a share. (Update: That’s exactly what happened.) That would value the company at around $104 billion – roughly half the current value of its biggest rival in the online ad space, Google. While a lofty and unjustifiably high valuation for the social media giant had been expected given its position in popular culture, a $104 billion valuation is borderline bonkers. The company’s future earnings potential is shaky and its only real product appears to be close to maturity. Facebook’s IPO isn’t about raising money to nurture an amazing product — it’s about cashing out at the peak. Investors should “like” with caution.

Facebook’s offering documents and its 30-minute “feel-good” video presentation is heavy on the present and light on the future. In the video, for example, the section labeled “The Future” lasts only a couple of minutes and the company is vague about how they plan to grow it profitably. They rightly say that monetizing its mobile platform is the key to Facebook’s growth, but also note that they have pretty much no idea what to do about it except throw a bunch of money at the problem and hope something great happens.

A good chunk of that money will come from the $18.4 billion in proceeds Facebook could raise in the IPO on Friday, provided that the whole overallotment is sold. But the majority of the cash raised won’t be going to Facebook — it goes to its early venture investors who have been begging and pleading with Mark Zuckerberg, the founder of Facebook, to take the company public for years now.

Just yesterday, at what is basically the last minute for this offering, we learned that some of Facebook’s biggest venture investors were putting up more of their shares for sale than originally planned. The updated filing on Wednesday saw the number of shares available for the IPO jump from 337.4 million to 431.2 million, a nearly 25% increase. The two most notable shifts came from Tiger Global Management, which went from selling 3 million shares to 23 million shares, and Goldman Sachs (GS), which went from selling 13.2 million to 28.7 million. These early investors in Facebook don’t just want to cash out, they want to run away. That’s not a good sign.

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But who could blame them? At such a high valuation they would be crazy not to get out now. If Facebook ends up valued at $104 billion, it would trade at 28 times its 2011 revenue and 104 times earnings. That implies that it will see parabolic growth in earnings in the near future. That seems highly unlikely.

For comparison, let’s look at Google (GOOG), which is currently the king of internet advertising and probably Facebook’s biggest competitor. When it went public in 2004, Google was valued at 16 times its trailing revenue and 218 times its trailing earnings. At its implied valuation of 104 times earnings, that means investors today should believe that Facebook will grow at roughly half the rate that Google did when it first came out of the gates to justify its valuation. Google currently trades at 18 times earnings, which implies that Facebook should have roughly five times the growth potential than Google will have in the near future.

Facebook would love to grow that fast, but it probably won’t even get close. Let’s look at some numbers. In Google’s final quarter as a public company, the first quarter of 2004, its revenues jumped 161% from the same period a year earlier, while its earnings jumped 109%. Given its strong earnings momentum investors rewarded the company with a high valuation. The company didn’t disappoint and three years later in the second quarter of 2007 its revenues were up 590% from the same period in 2004, while earnings grew by an even more impressive 667%.

Now let’s look at Facebook. In the first quarter of this year its revenue grew by just 45% from the same period a year earlier while its earnings actually fell 12%. It’s hard to justify to investors that you are a super hot growth company with numbers like that.

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Facebook appears to be maturing at a rapid rate. Its main platform, the desktop website, is losing eyeballs to its mobile platform as more and more people use their phones as the primary way to access the web. Investors in Facebook will need to have faith that the company can somehow monetize its mobile platform – and fast. The company thinks it will be able to do this by inserting ads in users “newsfeeds.” While that’s certainly possible, it is unknown as to whether such a move will successfully produce enough revenue to justify Facebook’s lofty valuation.

It’s also unclear if mobile ads will produce results for advertisers. After all, users on its desktop version rarely click on Facebook ads. A recent poll conducted by the Associated Press and CNBC found that 83% of Facebook users “hardly ever” clicked on a Facebook ad. While the company’s road show video highlighted happy businesses, like Ben & Jerry’s Ice Cream and Diageo, which saw a boost in business by advertising through Facebook, they may actually be the exception. This week, General Motors (GM), one of the largest advertisers in the United States, reportedly has stopped paying for ads on Facebook, saying that they were “ineffective.” Other major companies might soon follow. This is not what you want to see from a company that will soon trade at over 100 times earnings.

To be sure, Facebook does have considerable value – just not $104 billion in value, at least not yet. It does have personal information on hundreds of millions of people from around the globe and that’s truly valuable stuff for marketers and advertisers. But the question is can Facebook grow its already 900 million strong user base? It should, but it probably won’t happen as fast as it did in the past.

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Indeed, it appears that the parabolic growth in users has already taken place in countries where it is the dominant social media platform. Facebook will be able to grow its user base in those countries, but not as fast as it did before. Not because there is competition in those countries, but because the people who are not on Facebook choose not to be on Facebook for some reason or another, mostly due to privacy concerns.

In countries where Facebook does not have a strong presence, it’s not because people haven’t heard of it; rather, it’s because they are already using another social media platform. Those platforms include Cyworld in Korea, Mixi in Japan, Orkut (owned by Google) in Brazil and India and vKontakte in Russia. Facebook isn’t in China, which is not a surprise, but if it is ever able to get in, it would face competition from social media sites like Ren Ren, Sina and Tencent. The countries where Facebook isn’t big due to a competitor are also the big emerging markets where the economy is growing rapidly and the population is becoming more affluent.

To be successful in the long term, Facebook will need to get very creative and probably open new business lines if it wants to ever come close to living up to its valuation. That’s easier said than done. Google hasn’t really shown that much progress in growing outside of its core search product and Facebook will probably experience the same thing as it tries to grow beyond just facebook.com. Wall Street has now raised several billion dollars for Facebook to make a go at it – let’s hope they spend it wisely.

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