SAN FRANCISCO — When Facebook CEO Mark Zuckerberg showed up in midtown Manhattan in May of 2012 for a meeting with potential IPO investors, many buttoned-up Wall Street types gathered at the Sheraton Hotel there scoffed at his casual attire.

Some snickered again when Zuckerberg, clad in his trademark hoodie, suggested that Facebook’s total addressable market could be worth hundreds of billions of dollars.

To accept that figure for consideration, one had to believe that the social media upstart – which had no video ad products at the time – could steal advertising dollars away from the broadcast and cable television networks.

That number, in fact, echoed language in the company’s original prospectus, where Facebook wrote that “total worldwide advertising spending in 2010 was $588 billion,” in the first paragraph of the document section titled “Our Market Opportunity,”

The skeptics from New York – America’s advertising capital – could be forgiven for laughing then.

But after the company’s third-quarter financial report was released late Wednesday, no one who makes a living selling ads is laughing at Zuckerberg now.

Not after Facebook sold over $1 billion more in advertising during the period than it did in the same quarter a year ago, driving total revenue up 41% to $4.5 billion.

And not after its executives said on an earnings conference call that prices paid per ad were up a mind-blowing 61% year-over-year, driving ad revenue 45% higher (57% on a constant currency basis.)

“If you want to shift brand awareness, we can do that,” Facebook COO Sheryl Sandberg said confidently, after reeling off a series of cases in which online marketers had used Facebook ads together with other online and offline promotions to boost both sales and consumer mind-share.

Investors who once scoffed now can’t buy the company’s shares fast enough as Facebook (FB), at $109 a share, is now valued at $308 billion, or nearly three times its IPO valuation.

Yet that figure makes it hard to argue that its shares are a screaming buy right now.

In fact, Facebook is now worth more than Intel and Cisco combined, and more than 15 times the valuation of Twitter, its smaller rival in the business of mobile advertising.

As I wrote in a column yesterday, the stock’s year-to-date surge makes it look over-bought in the near-term.

What’s more, the large Facebook stock sale in the past week by prominent venture capitalist Marc Andreessen, a board member and early investor, in the company, is a reminder that insiders are always the biggest beneficiaries of big tech IPOs.

The conversion of stock options and grants by employees and other insiders dilutes the holdings of ordinary shareholders, and such dilution has been large and growing at Facebook.

The company has paid out $2.2 billion in stock-based compensation this year – more than its year-to-date net income of $2.13 billion — and its share count has ballooned to 2.86 billion shares.

That’s up 52% from the 1.88 billion shares it had during the quarter it went public.

That explains why, despite how good Facebook was at selling ads in the third quarter, its bottom-line earnings per share rose by just a penny, to 31 cents from 30 cents a year earlier.

And that makes the company’s price-to-earnings ratio sky-high, as columnist Matt Krantz wrote.

While Facebook’s success should make it a core long-term holding for growth investors, getting in after a huge rally can depress a retail investor’s portfolio returns, just as the company’s growing share count crimps earnings-per-share.

That’s why value-conscious investors should be wary of Facebook’s valuation, just as the ad industry should be wary of the company’s success.

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