A Facebook employee holds a cell phone, on April 4, 2013, in Menlo Park, Calif. © Justin Sullivan, Getty Images

Facebook (FB) has doubled in just a few short months, sparked by better-than-expected second-quarter earnings in July, and is up over 170 percent in the last year.

And while it's unfashionable to badmouth this social-media stock as it approaches its next earnings report, count me among the Facebook bears.

I think that even if Facebook manages to post decent numbers this week when it reports earnings, the stock can't keep this run up for much longer — and investors who are sitting on big profits may be wise to sell now rather than risk steep declines.

Here's why I refuse to "like" Facebook stock.

Facebook's most valuable users flatlining

The biggest reason to be bearish on Facebook is that domestic and European users have flatlined. I personally expect the company to post a decline in its U.S./Canada segment this quarter, or next quarter at the very latest.

That is not going to be a pleasant headline when FB sees its first-ever drop in U.S. users after its massive growth… just look at the fireworks in Netflix (NFLX) after its subscriber drop at home as a case study.

This is disturbing for obvious reasons in regard to the saturation of these markets and how it will affect growth, but it's even more disturbing when you consider that growth in emerging markets comes with only a fraction of the revenue.

Consider these figures from Facebook's last earnings report:


  • Users: 198 million, or 17.1 percent of FB total
  • Revenue per User: $4.32


  • Users: 272 million, or 23.5 percent of FB total
  • Revenue per User: $1.87


  • Users: 339 million, or 29.4 percent of FB total
  • Revenue per User: $0.75

Rest of World

  • Users: 346 million, or 30.0 percent of FB total
  • Revenue per User: $0.63

U.S./Canada is by far the most lucrative region by geography, with Europe an obvious second.

But consider that from the first quarter to the second quarter of 2013, Facebook grew its monthly active users less than 1 percent quarter-over-quarter, and year-over-year growth was a measly 6 percent.

In its second-quarter numbers, Facebook reported that $848 million in revenue — almost half of its $1.8 billion in total revenue on the quarter — came from users in the U.S. and Canada. So even a small rollback here is going to be felt, and the lack of future upside is significant.

The situation is the same in Europe as well. Europe's monthly active users increased just 1 percent from the first quarter to the second, and a modest 10 percent over the second quarter of 2012.

The Facebook longs better be sure that this user base is going to stick, or else they are in serious trouble.

Mobile and margins amplify the problem

The bulls may contend that the problem, then, isn't growing the Western audience, but simply monetizing it better. And, oh, by the way, if you make more money off those "rest of the world" subscribers, then it won't take quite so many of them to offset lost U.S. revenue if the users do roll back.

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