A little over a year ago, Facebook was supposedly worth $50 billion thanks to a murky deal with a Russian investor, brokered by those masters of murky maneuvers: Goldman Sachs (NYSE: GS). Last week, that same valuation had risen to $100 billion and some analysts are now forecasting $160 billion.

These forecasts are based on Facebook’s upcoming initial public offering (IPO), through which it plans to sell 10 percent of its shares to the public. So what are you waiting for?! Facebook is going public!

Okay, before we all cash in our retirement accounts and go all-in, let’s slow down a second.

First of all, Facebook is in the Selling-Advertising-on-the-Internet-Business. Period. Whatever laudable goals Facebook achieves for world peace and freedom are incidental to the investment story.

With regard to that business model, one major proposition is that Facebook will take market share away from conventional advertising as well as from Google (NSDQ: GOOG), just as Google shook up the advertising revenue world when it came along.

Fair enough, but let’s examine the caveats. First, although Facebook has some ability to target customers by age, sex, address, etc., its model relies on the age-old formula of putting advertisements in front of potential customers.

Google works differently. Tell Google you’re interested in something and Google instantaneously finds it for you—and lets you comparison shop and browse around, to boot. That’s a powerful new model.

Why? Because the Google model does away with “targeting”; the target comes to Google. If I type “lawnmower” into Google search, I’m offered not only lawnmowers but also grass seed, irrigation systems, pesticides, slug bait AND suntan lotion—and all of this without Google having a clue about where I live, how old I am, or if I’m single or not.

Facebook has implied that it, too, is coming up with something this innovative. So far, however, Facebook has not. In fact, Facebook hasn’t even worked out how to get advertising to the 33 percent of its “friends” worldwide who access their Facebook accounts via mobile phone.

Yes, it is true that Facebook gets more page views each day than Google. However, Facebook’s revenue and profits are both much lower than Google’s. Facebook had $3.15 billion in advertising revenue in 2011. Take out the 15 percent Facebook gets from games, which are low margin, and the result is that Facebook’s 2011 revenue was about 10 percent of what Google took in during the same year.

The Billion-Dollar Question

At recent prices, Google’s market capitalization is $200 billion. This begs the question: How can a company (namely Facebook), which makes 10 percent of the revenue and 5 percent of the profits of the market leader (namely Google), be worth 50 percent to 70 percent of what the market leader is worth? This disparity exists, despite the fact that Facebook’s profit-margin growth is sagging while that of Google’s is increasing.

Can Facebook’s growth come at the expense of Google? Not likely; no one is talking about Facebook taking market share from Google. While Facebook grew its business from zero to $3.7 billion a year, Google’s business grew by $15 billion a year, which hardly sounds like a case of David scoring a direct hit on Goliath.

Google has $34 billion in the bank and a stable business model in multiple sectors. There is no evidence that Google is incapable of continuing to conduct impressive research and development and expand. Facebook might have $10 billion in the bank after the IPO, less the cash-out by early investors. There is no evidence Facebook has much more to offer than Google, other than the slightly creepy model of making 845 million “friends,” collecting details about them, and selling those details to advertising companies.

As far as growing the number of “friends” is concerned, there are 2.5 billion Internet users in the world, and an impressive 33 percent have Facebook accounts. However, the one thing that is not explained in Facebook’s IPO filing with the US Securities and Exchange Commission (SEC) is that the rate of growth in Facebook accounts is declining sharply.

The Numbers Game

New companies typically grow along an “S-curve,” or in other words, a “cumulative normal distribution function.” First, there is lift-off; then the low-hanging fruit get picked; then they have to get a ladder to reach the ones at the top of the tree. Let’s take a look at the S-Curves for Google and Facebook:

The “Google 1st” S-Curve fits a cumulative normal probability distribution, with an R-squared of 99 percent up until 2008. Subsequently, something not-so-obvious happened and Google did it all over again, in the same way that Microsoft “did” Windows. Project this same curve forward for Google, allowing for 4 percent annual growth (nominal) in what is a saturated market, and you get to $45 billion per year by 2016.

Facebook seems to be coming out of the starting block slower than Google after it figured out how to monetize. Fit an “S-Curve” onto that (admittedly there are only four points, including zero) and the projection does not take you anywhere near Google.

Admittedly, this calculation may seem a bit contrived. So, let’s turn to the Immutable Law of Marketing: whoever gets to be #1 first, stays #1 unless they screw up royally. Typically, the ratio between #1 and #2 (in any industry) in terms of revenue ranges from 2:1 to 4:1.

How is Facebook going to bowl over the competition when Google has already done that and harvested the low-hanging fruit? Take a look at the chart of US advertising revenues adjusted for the growth of the economy. Typically, advertising revenues are 2 percent to 2.3 percent of nominal gross domestic product (GDP).

The chart shows that while newspapers had a 20 percent market share in 2001, this was slashed to 7 percent by 2011. Radio got hammered, too, but interestingly television survived rather well. So what is Facebook left with? Well, picking the bones, like any #2.

Project out the revenues for Facebook on the assumption it does not have a second wind (and there is no evidence now that it will); plug in the same profit margin Google has; and use the same discount factor that gets you a $200 billion valuation for Google. What pops out in the end is: $30 billion as the correct valuation for Facebook today. Or perhaps Google is undervalued, but then if Facebook is worth $100 billion, Google is worth $700 billion.

Sure, Facebook shares might spike at the IPO; there is no explaining the madness of crowds, particularly when Goldman Sachs is involved. However, unless you can buy Facebook for $5 a share, my advice is to wait and take advantage of the shorting opportunities that will inevitably follow. If, however, you’re looking for long-term value, well… “Google It.”

Andrew Butter solicits debt and equity for project finance, including structuring commercial mortgaged-backed securities rated by Moody’s Investors Service. He currently serves as a management and marketing consultant for the Dubai Municipality and the Dubai Economic Department.