Intrinsic value of Facebook Cl A - FB

Previous Close

$174.98

  Intrinsic Value

$497.56

stock screener

  Rating & Target

str. buy

+184%

Previous close

$174.98

 
Intrinsic value

$497.56

 
Up/down potential

+184%

 
Rating

str. buy

We calculate the intrinsic value of FB stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 508.2

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  54.16
  44.80
  40.82
  37.24
  34.01
  31.11
  28.50
  26.15
  24.04
  22.13
  20.42
  18.88
  17.49
  16.24
  15.12
  14.10
  13.19
  12.38
  11.64
  10.97
  10.38
  9.84
  9.35
  8.92
  8.53
  8.17
  7.86
  7.57
  7.31
  7.08
  6.87
Revenue, $m
  27,638
  40,020
  56,356
  77,342
  103,649
  135,897
  174,630
  220,298
  273,249
  333,726
  401,871
  477,733
  561,287
  652,444
  751,072
  857,010
  970,088
  1,090,137
  1,217,001
  1,350,552
  1,490,691
  1,637,356
  1,790,529
  1,950,233
  2,116,538
  2,289,559
  2,469,455
  2,656,430
  2,850,731
  3,052,646
  3,262,504
Variable operating expenses, $m
 
  13,635
  18,461
  24,661
  32,433
  41,960
  53,403
  66,895
  82,538
  100,405
  120,537
  141,137
  165,822
  192,752
  221,890
  253,187
  286,594
  322,060
  359,540
  398,995
  440,396
  483,726
  528,977
  576,159
  625,291
  676,406
  729,553
  784,791
  842,194
  901,846
  963,844
Fixed operating expenses, $m
 
  5,491
  5,628
  5,769
  5,913
  6,061
  6,212
  6,368
  6,527
  6,690
  6,857
  7,029
  7,205
  7,385
  7,569
  7,759
  7,952
  8,151
  8,355
  8,564
  8,778
  8,998
  9,222
  9,453
  9,689
  9,932
  10,180
  10,434
  10,695
  10,963
  11,237
Total operating expenses, $m
  15,211
  19,126
  24,089
  30,430
  38,346
  48,021
  59,615
  73,263
  89,065
  107,095
  127,394
  148,166
  173,027
  200,137
  229,459
  260,946
  294,546
  330,211
  367,895
  407,559
  449,174
  492,724
  538,199
  585,612
  634,980
  686,338
  739,733
  795,225
  852,889
  912,809
  975,081
Operating income, $m
  12,427
  20,894
  32,266
  46,911
  65,302
  87,876
  115,014
  147,035
  184,184
  226,631
  274,476
  329,567
  388,261
  452,307
  521,613
  596,064
  675,542
  759,925
  849,107
  942,993
  1,041,517
  1,144,633
  1,252,329
  1,364,621
  1,481,558
  1,603,221
  1,729,722
  1,861,204
  1,997,842
  2,139,838
  2,287,423
EBITDA, $m
  14,769
  23,916
  35,783
  51,063
  70,250
  93,799
  122,109
  155,511
  194,262
  238,538
  288,445
  344,019
  405,240
  472,044
  544,333
  621,989
  704,887
  792,902
  885,921
  983,848
  1,086,610
  1,194,163
  1,306,492
  1,423,616
  1,545,583
  1,672,480
  1,804,423
  1,941,561
  2,084,076
  2,232,180
  2,386,114
Interest expense (income), $m
  11
  0
  180
  418
  724
  1,107
  1,577
  2,142
  2,807
  3,579
  4,461
  5,454
  6,560
  7,778
  9,106
  10,544
  12,088
  13,736
  15,486
  17,335
  19,282
  21,324
  23,462
  25,695
  28,023
  30,447
  32,969
  35,591
  38,316
  41,148
  44,091
Earnings before tax, $m
  12,518
  20,894
  32,087
  46,494
  64,579
  86,769
  113,437
  144,893
  181,376
  223,051
  270,015
  324,113
  381,701
  444,530
  512,506
  585,521
  663,454
  746,189
  833,621
  925,658
  1,022,235
  1,123,309
  1,228,867
  1,338,926
  1,453,536
  1,572,774
  1,696,753
  1,825,614
  1,959,526
  2,098,689
  2,243,332
Tax expense, $m
  2,301
  5,641
  8,663
  12,553
  17,436
  23,428
  30,628
  39,121
  48,972
  60,224
  72,904
  87,511
  103,059
  120,023
  138,377
  158,091
  179,132
  201,471
  225,078
  249,928
  276,003
  303,293
  331,794
  361,510
  392,455
  424,649
  458,123
  492,916
  529,072
  566,646
  605,700
Net income, $m
  10,217
  15,252
  23,423
  33,940
  47,143
  63,341
  82,809
  105,772
  132,405
  162,828
  197,111
  236,603
  278,642
  324,507
  374,130
  427,430
  484,321
  544,718
  608,543
  675,731
  746,232
  820,015
  897,073
  977,416
  1,061,081
  1,148,125
  1,238,630
  1,332,698
  1,430,454
  1,532,043
  1,637,632

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  29,449
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  64,961
  51,439
  72,437
  99,411
  133,225
  174,675
  224,460
  283,159
  351,220
  428,954
  516,543
  614,053
  721,449
  838,617
  965,388
  1,101,555
  1,246,900
  1,401,204
  1,564,269
  1,735,928
  1,916,055
  2,104,571
  2,301,451
  2,506,726
  2,720,486
  2,942,878
  3,174,107
  3,414,434
  3,664,178
  3,923,709
  4,193,450
Adjusted assets (=assets-cash), $m
  35,512
  51,439
  72,437
  99,411
  133,225
  174,675
  224,460
  283,159
  351,220
  428,954
  516,543
  614,053
  721,449
  838,617
  965,388
  1,101,555
  1,246,900
  1,401,204
  1,564,269
  1,735,928
  1,916,055
  2,104,571
  2,301,451
  2,506,726
  2,720,486
  2,942,878
  3,174,107
  3,414,434
  3,664,178
  3,923,709
  4,193,450
Revenue / Adjusted assets
  0.778
  0.778
  0.778
  0.778
  0.778
  0.778
  0.778
  0.778
  0.778
  0.778
  0.778
  0.778
  0.778
  0.778
  0.778
  0.778
  0.778
  0.778
  0.778
  0.778
  0.778
  0.778
  0.778
  0.778
  0.778
  0.778
  0.778
  0.778
  0.778
  0.778
  0.778
Average production assets, $m
  10,030
  14,527
  20,457
  28,075
  37,625
  49,331
  63,391
  79,968
  99,189
  121,143
  145,879
  173,417
  203,747
  236,837
  272,639
  311,095
  352,142
  395,720
  441,772
  490,250
  541,121
  594,360
  649,962
  707,935
  768,303
  831,110
  896,412
  964,284
  1,034,815
  1,108,110
  1,184,289
Working capital, $m
  31,526
  3,001
  4,227
  5,801
  7,774
  10,192
  13,097
  16,522
  20,494
  25,029
  30,140
  35,830
  42,097
  48,933
  56,330
  64,276
  72,757
  81,760
  91,275
  101,291
  111,802
  122,802
  134,290
  146,267
  158,740
  171,717
  185,209
  199,232
  213,805
  228,948
  244,688
Total debt, $m
  0
  2,566
  5,968
  10,338
  15,815
  22,530
  30,595
  40,105
  51,131
  63,723
  77,913
  93,710
  111,108
  130,089
  150,626
  172,685
  196,231
  221,228
  247,645
  275,453
  304,634
  335,173
  367,068
  400,323
  434,952
  470,979
  508,438
  547,371
  587,830
  629,874
  673,572
Total liabilities, $m
  5,767
  8,333
  11,735
  16,105
  21,582
  28,297
  36,362
  45,872
  56,898
  69,490
  83,680
  99,477
  116,875
  135,856
  156,393
  178,452
  201,998
  226,995
  253,412
  281,220
  310,401
  340,940
  372,835
  406,090
  440,719
  476,746
  514,205
  553,138
  593,597
  635,641
  679,339
Total equity, $m
  59,194
  43,106
  60,702
  83,306
  111,642
  146,377
  188,097
  237,287
  294,322
  359,463
  432,863
  514,576
  604,574
  702,761
  808,995
  923,103
  1,044,902
  1,174,209
  1,310,858
  1,454,708
  1,605,654
  1,763,630
  1,928,616
  2,100,637
  2,279,767
  2,466,132
  2,659,901
  2,861,296
  3,070,582
  3,288,068
  3,514,111
Total liabilities and equity, $m
  64,961
  51,439
  72,437
  99,411
  133,224
  174,674
  224,459
  283,159
  351,220
  428,953
  516,543
  614,053
  721,449
  838,617
  965,388
  1,101,555
  1,246,900
  1,401,204
  1,564,270
  1,735,928
  1,916,055
  2,104,570
  2,301,451
  2,506,727
  2,720,486
  2,942,878
  3,174,106
  3,414,434
  3,664,179
  3,923,709
  4,193,450
Debt-to-equity ratio
  0.000
  0.060
  0.100
  0.120
  0.140
  0.150
  0.160
  0.170
  0.170
  0.180
  0.180
  0.180
  0.180
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
Adjusted equity ratio
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  10,217
  15,252
  23,423
  33,940
  47,143
  63,341
  82,809
  105,772
  132,405
  162,828
  197,111
  236,603
  278,642
  324,507
  374,130
  427,430
  484,321
  544,718
  608,543
  675,731
  746,232
  820,015
  897,073
  977,416
  1,061,081
  1,148,125
  1,238,630
  1,332,698
  1,430,454
  1,532,043
  1,637,632
Depreciation, amort., depletion, $m
  2,342
  3,023
  3,517
  4,152
  4,948
  5,923
  7,095
  8,476
  10,078
  11,907
  13,969
  14,451
  16,979
  19,736
  22,720
  25,925
  29,345
  32,977
  36,814
  40,854
  45,093
  49,530
  54,163
  58,995
  64,025
  69,259
  74,701
  80,357
  86,235
  92,343
  98,691
Funds from operations, $m
  16,866
  18,275
  26,940
  38,092
  52,090
  69,264
  89,904
  114,248
  142,483
  174,735
  211,080
  251,054
  295,621
  344,243
  396,850
  453,355
  513,666
  577,695
  645,357
  716,585
  791,325
  869,545
  951,236
  1,036,411
  1,125,106
  1,217,384
  1,313,331
  1,413,055
  1,516,688
  1,624,386
  1,736,323
Change in working capital, $m
  758
  929
  1,225
  1,574
  1,973
  2,419
  2,905
  3,425
  3,971
  4,536
  5,111
  5,690
  6,267
  6,837
  7,397
  7,945
  8,481
  9,004
  9,515
  10,016
  10,510
  11,000
  11,488
  11,978
  12,473
  12,977
  13,492
  14,023
  14,573
  15,144
  15,739
Cash from operations, $m
  16,108
  17,346
  25,715
  36,518
  50,117
  66,846
  86,999
  110,823
  138,511
  170,199
  205,969
  245,364
  289,354
  337,406
  389,453
  445,409
  505,185
  568,691
  635,842
  706,569
  780,815
  858,546
  939,748
  1,024,433
  1,112,633
  1,204,408
  1,299,839
  1,399,032
  1,502,116
  1,609,242
  1,720,584
Maintenance CAPEX, $m
  0
  -836
  -1,211
  -1,705
  -2,340
  -3,135
  -4,111
  -5,283
  -6,664
  -8,266
  -10,095
  -12,157
  -14,451
  -16,979
  -19,736
  -22,720
  -25,925
  -29,345
  -32,977
  -36,814
  -40,854
  -45,093
  -49,530
  -54,163
  -58,995
  -64,025
  -69,259
  -74,701
  -80,357
  -86,235
  -92,343
New CAPEX, $m
  -4,491
  -4,498
  -5,930
  -7,618
  -9,550
  -11,706
  -14,060
  -16,577
  -19,221
  -21,953
  -24,736
  -27,538
  -30,330
  -33,090
  -35,802
  -38,456
  -41,047
  -43,578
  -46,052
  -48,479
  -50,870
  -53,240
  -55,602
  -57,973
  -60,369
  -62,807
  -65,302
  -67,872
  -70,531
  -73,295
  -76,179
Cash from investing activities, $m
  -11,739
  -5,334
  -7,141
  -9,323
  -11,890
  -14,841
  -18,171
  -21,860
  -25,885
  -30,219
  -34,831
  -39,695
  -44,781
  -50,069
  -55,538
  -61,176
  -66,972
  -72,923
  -79,029
  -85,293
  -91,724
  -98,333
  -105,132
  -112,136
  -119,364
  -126,832
  -134,561
  -142,573
  -150,888
  -159,530
  -168,522
Free cash flow, $m
  4,369
  12,013
  18,574
  27,196
  38,228
  52,004
  68,828
  88,963
  112,626
  139,980
  171,137
  205,670
  244,573
  287,337
  333,914
  384,234
  438,214
  495,768
  556,814
  621,275
  689,090
  760,213
  834,617
  912,297
  993,270
  1,077,576
  1,165,277
  1,256,459
  1,351,228
  1,449,712
  1,552,063
Issuance/(repayment) of debt, $m
  -312
  2,566
  3,402
  4,370
  5,478
  6,715
  8,065
  9,509
  11,026
  12,593
  14,189
  15,797
  17,398
  18,981
  20,537
  22,059
  23,546
  24,997
  26,417
  27,809
  29,181
  30,540
  31,895
  33,255
  34,629
  36,027
  37,459
  38,933
  40,459
  42,044
  43,698
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -310
  2,566
  3,402
  4,370
  5,478
  6,715
  8,065
  9,509
  11,026
  12,593
  14,189
  15,797
  17,398
  18,981
  20,537
  22,059
  23,546
  24,997
  26,417
  27,809
  29,181
  30,540
  31,895
  33,255
  34,629
  36,027
  37,459
  38,933
  40,459
  42,044
  43,698
Total cash flow (excl. dividends), $m
  3,996
  14,579
  21,976
  31,565
  43,706
  58,719
  76,893
  98,472
  123,652
  152,573
  185,327
  221,466
  261,971
  306,319
  354,451
  406,293
  461,759
  520,766
  583,230
  649,084
  718,271
  790,752
  866,511
  945,551
  1,027,899
  1,113,604
  1,202,736
  1,295,392
  1,391,686
  1,491,756
  1,595,761
Retained Cash Flow (-), $m
  -14,976
  -13,361
  -17,596
  -22,604
  -28,336
  -34,735
  -41,720
  -49,190
  -57,035
  -65,141
  -73,400
  -81,713
  -89,998
  -98,187
  -106,234
  -114,108
  -121,799
  -129,307
  -136,649
  -143,850
  -150,946
  -157,976
  -164,985
  -172,021
  -179,131
  -186,364
  -193,770
  -201,395
  -209,285
  -217,487
  -226,043
Prev. year cash balance distribution, $m
 
  29,449
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  30,667
  4,380
  8,961
  15,370
  23,984
  35,173
  49,282
  66,617
  87,432
  111,927
  139,753
  171,973
  208,132
  248,217
  292,184
  339,961
  391,459
  446,582
  505,234
  567,324
  632,776
  701,526
  773,531
  848,768
  927,239
  1,008,967
  1,093,997
  1,182,401
  1,274,269
  1,369,718
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  29,403
  4,010
  7,799
  12,656
  18,591
  25,527
  33,295
  41,637
  50,225
  58,679
  66,367
  73,387
  79,136
  83,331
  85,780
  86,391
  85,175
  82,242
  77,792
  72,090
  65,450
  58,208
  50,698
  43,229
  36,071
  29,437
  23,480
  18,293
  13,910
  10,313
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Facebook, Inc. is focused on building products that enable people to connect and share through mobile devices, personal computers and other surfaces. The Company's products include Facebook, Instagram, Messenger, WhatsApp and Oculus. Facebook enables people to connect, share, discover and communicate with each other on mobile devices and personal computers. Instagram enables people to take photos or videos, customize them with filter effects, and share them with friends and followers in a photo feed or send them directly to friends. Messenger allows communicating with people and businesses alike across a range of platforms and devices. WhatsApp Messenger is a messaging application that is used by people around the world and is available on a range of mobile platforms. Its Oculus virtual reality technology and content platform offers products that allow people to enter an interactive environment to play games, consume content and connect with others.

FINANCIAL RATIOS  of  Facebook Cl A (FB)

Valuation Ratios
P/E Ratio 49.5
Price to Sales 18.3
Price to Book 8.5
Price to Tangible Book
Price to Cash Flow 31.4
Price to Free Cash Flow 43.6
Growth Rates
Sales Growth Rate 54.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 78%
Cap. Spend. - 3 Yr. Gr. Rate 27%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 1139
Management Effectiveness
Return On Assets 17.9%
Ret/ On Assets - 3 Yr. Avg. 12.1%
Return On Total Capital 19.7%
Ret/ On T. Cap. - 3 Yr. Avg. 13.4%
Return On Equity 19.8%
Return On Equity - 3 Yr. Avg. 13.4%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 86.3%
Gross Margin - 3 Yr. Avg. 84.3%
EBITDA Margin 53.8%
EBITDA Margin - 3 Yr. Avg. 49.6%
Operating Margin 45%
Oper. Margin - 3 Yr. Avg. 39.9%
Pre-Tax Margin 45.3%
Pre-Tax Margin - 3 Yr. Avg. 39.7%
Net Profit Margin 37%
Net Profit Margin - 3 Yr. Avg. 27%
Effective Tax Rate 18.4%
Eff/ Tax Rate - 3 Yr. Avg. 33%
Payout Ratio 0%

FB stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the FB stock intrinsic value calculation we used $27638 million for the last fiscal year's total revenue generated by Facebook Cl A. The default revenue input number comes from 2016 income statement of Facebook Cl A. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our FB stock valuation model: a) initial revenue growth rate of 44.8% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for FB is calculated based on our internal credit rating of Facebook Cl A, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Facebook Cl A.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of FB stock the variable cost ratio is equal to 36.1%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $5357 million in the base year in the intrinsic value calculation for FB stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 7% for Facebook Cl A.

Corporate tax rate of 27% is the nominal tax rate for Facebook Cl A. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the FB stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for FB are equal to 36.3%.

Life of production assets of 12 years is the average useful life of capital assets used in Facebook Cl A operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for FB is equal to 7.5%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $59194 million for Facebook Cl A - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 2904.22 million for Facebook Cl A is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Facebook Cl A at the current share price and the inputted number of shares is $508.2 billion.

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TWX Time Warner 101.83 143.47  buy

COMPANY NEWS

▶ Facebook denies plans to charge publications for posts   [Oct-23-17 07:52PM  MarketWatch]
▶ Here's What Facebook Messenger Can Do For Your Stock Portfolio   [04:03PM  Investor's Business Daily]
▶ A Look at Facebooks Virtual Reality Ambitions   [09:07AM  Market Realist]
▶ New FANGs for Halloween: Best of Cramer   [08:21AM  TheStreet.com]
▶ Why Facebook (FB) Stock Is so Easy to Like   [05:58AM  InvestorPlace]
▶ Think the U.S. Has a Facebook Problem? Look to Asia   [Oct-22-17 06:00PM  Bloomberg]
▶ [$$] Washington finally focuses on Big Tech   [11:34AM  Financial Times]
▶ Facebook, Inc. Earnings: What to Watch   [10:18AM  Motley Fool]
▶ How Facebooks Master Algorithm Powers the Social Network   [08:00AM  The Wall Street Journal]
▶ Netflix shows that it has no real competitors   [Oct-21-17 01:34PM  MarketWatch]
▶ A Tale Of 4 IPOs: Facebook, Alibaba, Snap And Square   [11:51AM  Investor's Business Daily]
▶ [$$] The Downside of Big Profits at Google and Facebook   [Oct-20-17 11:03PM  The Wall Street Journal]
▶ Facebook tests subscriptions, paywalls for Instant Articles   [05:49PM  American City Business Journals]
▶ Report: Facebook employees feel victimized by election outcome outrage   [04:44PM  American City Business Journals]
▶ How Does Facebook Compare To Amazon, Netflix And Google?   [04:07PM  Investor's Business Daily]
▶ PayPal Looks to Extend Reach With Facebook Deal   [03:17PM  The Wall Street Journal]
▶ More Ads, More MoneyFor Google, Facebook   [02:49PM  Barrons.com]
▶ [$$] The Downside of Big Profits at Google and Facebook   [11:57AM  The Wall Street Journal]
▶ How FANG Stocks Lost Their Bite   [11:39AM  Bloomberg Video]
▶ What Facebook Learned from Its Cricket Bid   [10:37AM  Market Realist]
▶ Where Snapchat Is Beating Facebook   [09:10AM  Market Realist]
▶ ALEXA: News Update Pre Markets Oct20   [05:30AM  CNBC Videos]
▶ Facebook to Test News-Subscription Sign-Up   [12:39AM  The Wall Street Journal]
▶ The Most Important Virtual Reality Tech Coming in 2018   [Oct-19-17 09:07PM  Motley Fool]
▶ [$$] Facebook to Test News-Subscription Sign-up   [01:49PM  The Wall Street Journal]
Financial statements of FB
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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