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There’s no middle ground when it comes to Facebook’s IPO (NASDAQ:FB).

Analysts either believe it’s the next Google (Nasdaq: GOOG) – a true internet innovator destined to book billions in profits and reward shareholders in the process. Or they believe it’s the next AOL – a company with no real long-term future that’s destined to disappoint.

Given my two previous articles – “Three Reasons to Avoid the Facebook IPO” and “The Greatest Short Opportunity Ever” – you can tell I sit firmly in the latter camp. That’s even truer after my latest analysis, which revealed what I believe is the number one reason Facebook is doomed: lower unemployment.

Let me explain…

Nothing But An Unemployment Phenomenon

There’s no denying Facebook’s meteoric growth. The company went from 66 million users in early 2008 to 845 million today. That’s more than a tenfold increase!

You know what, though? That time period happens to coincide with the most severe economic recession the world’s experienced since the Great Depression. One during which global unemployment spiked, to the surprise of many decoupling advocates, leaving millions upon millions of people with plenty of extra time to spend on Facebook.

Put simply, Facebook is an unemployment phenomenon.

You think I’m kidding right? Well, I’m not. Because there’s a definite connection between Facebook’s growth rate and unemployment. Just take a look at this chart:

It compares the U-6 unemployment rate – the Labor Department’s broadest measure of unemployment – to Facebook’s growth in monthly active users in the United States and Canada.

As you can see, Facebook enjoyed the highest quarterly growth rates when unemployment spiked. But as unemployment dropped, so did Facebook’s growth rate. Coincidence? Anomaly? I think not!

Sure, some of it can be explained by the fact – which I previously reported – that “Facebook’s growth is nearing a saturation point in the United States.” But not all of it. Especially since this connection isn’t isolated to the United States.

Turns out, if we compare the unemployment rate in the European Union with Facebook’s growth rates in Europe, we witness a similar connection, with a slight lag. Take a look:

So what’s the big deal? It’s simple, really. The employment picture is improving. Thankfully more people are finding work. And that means they’ll have less time to Facebook.

Add it all up and that’s bad news for Facebook’s future profitability.

You see, the company might be growing the fastest outside of the United States, Canada and Europe. But it still relies heavily on the three regions for sales.

Management readily admits it in the company’s IPO filing, too, stating:

In 2011, we generated approximately 56% of our revenue from advertisers and Platform developers based in the United States… The majority of our revenue outside of the United States came from customers located in Western Europe, Canada, and Australia.

Here’s where the situation gets worse…

Although the United States and Canada only represent 21.2% of Facebook’s user base, the company derives more than 56% of its sales from these two markets. And advertisers are less than thrilled with the results.

According to Forrester analyst, Nate Elliott, “We’re hearing from our clients that their return on investment from Facebook ads doesn’t look anything nearly like what it does for TV, print and radio ads, or from Google advertising.” He goes on to say, “If marketers find in 2012 that Facebook ads still aren’t delivering, I would worry about how much they spend in 2013.”

Bottom line: Facebook could be staring down the dreaded double whammy. Muted user growth prospects thanks to increased employment. And lower revenue if the social network doesn’t deliver a better return on investment to advertisers. So forget about the next Google. Facebook’s more likely to become the next AOL.

Source: The Untold Threat To Facebook's IPO