That’s at least my 4th wittiest title of all time. It’s no Linky and the Brain, but it’s still solid.

Let’s start things off with a one year chart of Facebook stock (FB), shall we?

Screen Shot 2013-09-26 at 8.37.57 PM

 

 

Facebook stock has been on a monster ride since the later part of July, right after they released really good second quarter earnings. Revenue rose from $1.187B to $1.813B, an increase of over 50%. Earnings also swung positive, going from ($0.08) to $0.17. Facebook worked hard at monetizing both web and mobile, and it’s obvious the strategy is working.

Assuming the company can continue to earn $0.17 on a quarterly basis, (an imperfect metric, but bear with me here) that puts the stock at a mere 78 times this year’s earnings. Yikes. At least there’s growth.

According to Yahoo!, analysts are forecasting revenue of $1.89B for the quarter ending in just a few days, and $2.19B for the next quarter. They’re also guessing the company brings in $7.35B this year and $9.70B next year, with earnings checking in at $0.72 and $0.96 per share, respectively. Assuming no appreciation in the stock price from now until the end of next year, FB will trade at over 50x earnings. That’s rich, especially considering the company isn’t really growing that fast.

The company is doing some good things. They’ve monetized mobile users, as I mentioned before. They’ve recently announced plans to start throwing ads up on Instagram, their $1B acquisition that officially closed a year ago. There are reports out of China that the government is starting to take Facebook off its forbidden website list, opening up a huge new market for FB, even though they’re now years behind incumbents there. Things look promising for the company. Now if only your friend from high school would stop showing so many baby pictures.

The company’s balance sheet looks fine too. The company sports over $10B in cash compared to $1.8B in debt and capital lease obligations. Book value is a measly $3+ per share, but when are you ever going to find an internet company that’s trading close to book? The balance sheet is stuffed with intangibles and goodwill, two things that’ll make a value investor run faster than a Facebook user after their mother found their profile.

Facebook’s growth is slowing in North America, as the number of daily active users only grew from 139M to 142M quarter over quarter. There are 350M people in Canada and the United States, meaning over 40% of us spend some time on Facebook everyday. The real growth is going to be in Asia, where there are only 167M daily active users out of a pool of well over 1B people.

Also, it turns out Asians aren’t really clicking on Facebook ads. The company had revenues of $247M from Asia, ($1.48 per DAU) compared to $848M for North America. ($5.97 per DAU) North American customers are ridiculously profitable compared to their Asian counterparts, yet all the growth potential is coming from that part of the world. That may change as the company gets better at monetizing mobile, since Asian users are more likely to access the site via their cell phone.

Facebook has essentially two revenue drivers, ads and fees from games. Ads make up the majority of Facebook’s revenue, as gaming only represents an 11% slice of the pie. Gaming revenue is growing nicely, up 34% on a quarter over quarter basis, but it still remains to be seen if gaming revenue can propel Facebook into a new wave of huge revenue growth. Facebook is sitting on a gold mine of people’s information, which has to be a revenue driver going forward. Many investors think that information will end up being Facebook’s greatest success.

And then there’s competition. Twitter is a popular social network on this side of the pond, especially with this guy. (Shameless plug: follow me please) Sites like Reddit, 4Chan and others are also taking eyeballs away from Facebook as well, and apparently Myspace is still a thing. There are many smartphone apps that connect users and allow them to communicate easily. And that’s even mentioning the many social networks that are gaining all sorts of traction in Asia. Facebook has the advantage of being the biggest and baddest, but that advantage could be eroded over time as competitors catch up.

Facebook isn’t alone with the large valuation either. Other internet darlings like LinkedIn, Yelp, or Amazon trade for similarly generous valuations. And unlike some of them, Facebook is actually profitable. But that doesn’t mean you should invest in Facebook stock.

Disclosure: No position in any stocks listed, nor do I have a Facebook account.

Tell everyone, yo!