A total of $42.37 billion. That's the implied valuation ascribed to shares of Facebook on secondary share offering site Sharespost. That puts the company somewhere between Morgan Stanley (NYSE: MS) and Target (NYSE: TGT) in terms of equity value in this country. Simply incredible.  

Is the company really worth that much?

The dawn of an empire
I joined Facebook back in 2004-2005 when it was essentially a place where a few hundred thousand college students could evaluate the looks of their classmates, trade photos of the prior night's antics, and organize a last-minute party or two. In the ensuing years that witnessed Facebook's rise to prominence, the company performed admirably well in all of these tasks and more, so well in fact that the rest is history. With more than 500 million users today, the company dwarfs all but two nations in terms of population.

The problem in my view is that popularity doesn't necessarily translate over to profitability -- at least, profitability on the scale that would be necessary to support a massive valuation like this one. This is especially important considering the fact that we seem to be inching toward an inevitable Facebook IPO.

What is it worth?
There's no doubt that Facebook has turned into a beast unto itself, supporting a variety of cottage industry and even unique platforms of its own. But, what is interesting is the incredible hype that continues to surround a business that has still not yet found a meaningful road to monetization for itself. Call me ignorant, but all I see for the time being is a relatively unproven business model, pushing an extraordinary valuation.

Consider a few figures. The Economic Times estimated Facebook's 2009 revenue at $800 million and estimated that the company brought in "a solid net profit in the tens of millions" -- not bad at all for a fast-growing Internet company. However, reflect on these figures against that $42 billion valuation and all of a sudden that $800 in revenue looks fairly miniscule. Even if these estimates are off by a factor of ten (Fortune pegs them even lower, by the way), Facebook would still be priced outrageously high.

I'm no Benjamin Graham, but even I can see that shares of Facebook today are trading for, ohhh, about 50 times sales and at least 1,000 times earnings. To put that number in perspective, the two highest going price-to-sales multiples of companies over the $25 billion threshold today are Baidu.com (Nasdaq: BIDU) and VMWare (NYSE: VMW), which chime in at 34 times and 13 times, respectively. The only difference is that Baidu already pulls in about $420 million in earnings after only barely denting its Chinese market with a very proven business model, while VMware delivers about $300 million on top of a proven model of its own.

Big money flowing
It's not just the relative valuation that is fascinating to look at here -- it's the scale we're dealing with. As I mentioned earlier, right now Facebook's equity capital is worth about what Morgan Stanley and Target are worth individually. But consider for a moment the profitability of these two companies. Morgan brought in about $4.5 billion in earnings in the past 12 months, while Target brought in about $2.8 billion. Facebook would have to go from earning in the "tens of millions" to the multiple billions to at least substantiate its existing valuation. It's definitely possible to hit this hurdle, but there are admittedly few companies in the world that have ever made that kind of leap successfully and sustainably. It's not easy.

Considering the scale on which Facebook works, CEO Mark Zuckerberg could probably slap on a $25 fee per user and leapfrog over both Morgan Stanley and Target in the short term and start hauling in some serious loot.

But, herein lies the problem. How exactly will Facebook monetize itself when it finally decides to do so on a massive level? Can it even monetize without voiding its own existence?

Svetlana Kjerxacndsky has indicated you are a friend
There was a time when I really enjoyed Facebook and all of its features. These days, however, I'm pretty much already friends with everyone I could plausibly call a friend. All those irregular hits of joy from friend requests and pokes and whatnot have been eclipsed by many larger instances of displeasure thanks to phony invites from what appear to be either mail-order brides or scam artists or both. For someone who's been in the system for a few years now, the initial thrill is definitely gone, and the platform is now beginning to lose serious appeal. One should ask whether the majority of users can see long-term value in this company.

More significant is the fact that Facebook is less of a service and more of a novelty. If faced with the proposition of paying for Facebook, I would balk -- hard and fast. Of course, Facebook doesn't make money via subscription (and probably couldn't even if it wanted to). Instead, Facebook makes money via targeted advertising and a few other hard-to-define products.

Facebook doesn't really offer me any kind of core service that would force me to work through its still very immature ad engine. Google (Nasdaq: GOOG) already has that on lock-down with its search, email, and other features.

In other words, if I had to choose between the two, Facebook would be gone in a second. Plus, Google is churning such a massive amount of cash flow today that it has a nearly unlimited tap to hit for capital to develop the products of tomorrow. I just don't see how Facebook can make that oh-so-critical transition from user behemoth of today to profit machine of tomorrow.

The Facebook bottom line
I don't claim to know or understand everything that Facebook is doing to substantiate its outrageously high valuation. All I know is that based on my own experiences with the business, the numbers indicate to me that the company is unlikely to match up the lofty expectations of its investors. It's possible, yeah, but improbable.

I like the company and admire its meteoric rise to power. But if you're looking at the company as a future investor, take some time to think about how the company will reward you. I'm not sure the company even knows yet for itself.

Fool Nick Kapur thought Facebook died the day his parents joined. He owns no shares of any company mentioned above. Google is a Motley Fool Inside Value pick. Baidu, Google, and VMware are Motley Fool Rule Breakers recommendations. The Fool owns shares of Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.