Intrinsic value of Facebook Cl A - FB

Previous Close

$169.64

  Intrinsic Value

$635.74

stock screener

  Rating & Target

str. buy

+275%

  Value-price divergence*

+340%

Previous close

$169.64

 
Intrinsic value

$635.74

 
Up/down potential

+275%

 
Rating

str. buy

 
Value-price divergence*

+340%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

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 487.1

 

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
  49.20
  44.78
  40.80
  37.22
  34.00
  31.10
  28.49
  26.14
  24.03
  22.12
  20.41
  18.87
  17.48
  16.24
  15.11
  14.10
  13.19
  12.37
  11.63
  10.97
  10.37
  9.84
  9.35
  8.92
  8.53
  8.17
  7.86
  7.57
  7.31
  7.08
Revenue, $m
  27,638
  41,236
  59,701
  84,061
  115,350
  154,568
  202,638
  260,369
  328,431
  407,342
  497,463
  599,003
  712,037
  836,526
  972,336
  1,119,271
  1,277,092
  1,445,545
  1,624,378
  1,813,361
  2,012,301
  2,221,051
  2,439,520
  2,667,681
  2,905,570
  3,153,289
  3,411,011
  3,678,973
  3,957,479
  4,246,897
  4,547,657
Variable operating expenses, $m
 
  13,995
  19,450
  26,646
  35,890
  47,476
  61,678
  78,733
  98,841
  122,154
  148,778
  176,964
  210,358
  247,135
  287,258
  330,667
  377,292
  427,059
  479,891
  535,723
  594,496
  656,167
  720,710
  788,115
  858,395
  931,579
  1,007,718
  1,086,882
  1,169,161
  1,254,665
  1,343,518
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
  19,486
  25,078
  32,415
  41,803
  53,537
  67,890
  85,101
  105,368
  128,844
  155,635
  183,993
  217,563
  254,520
  294,827
  338,426
  385,244
  435,210
  488,246
  544,287
  603,274
  665,165
  729,932
  797,568
  868,084
  941,511
  1,017,898
  1,097,316
  1,179,856
  1,265,628
  1,354,755
Operating income, $m
  12,427
  21,750
  34,623
  51,645
  73,546
  101,031
  134,748
  175,268
  223,063
  278,499
  341,827
  415,010
  494,475
  582,005
  677,509
  780,845
  891,847
  1,010,335
  1,136,132
  1,269,075
  1,409,027
  1,555,886
  1,709,588
  1,870,113
  2,037,485
  2,211,779
  2,393,113
  2,581,656
  2,777,622
  2,981,270
  3,192,902
EBITDA, $m
  14,769
  24,810
  38,241
  56,000
  78,848
  107,519
  142,690
  184,956
  234,811
  292,633
  358,688
  433,130
  516,014
  607,310
  706,922
  814,703
  930,479
  1,054,063
  1,185,269
  1,323,929
  1,469,899
  1,623,073
  1,783,384
  1,950,810
  2,125,379
  2,307,166
  2,496,296
  2,692,945
  2,897,336
  3,109,739
  3,330,469
Interest expense (income), $m
  11
  0
  197
  467
  822
  1,278
  1,849
  2,550
  3,391
  4,383
  5,534
  6,847
  8,327
  9,975
  11,789
  13,769
  15,911
  18,211
  20,666
  23,273
  26,028
  28,927
  31,970
  35,154
  38,480
  41,947
  45,558
  49,315
  53,220
  57,280
  61,498
Earnings before tax, $m
  12,518
  21,750
  34,426
  51,179
  72,725
  99,753
  132,899
  172,718
  219,672
  274,115
  336,294
  408,163
  486,148
  572,031
  665,719
  767,076
  875,937
  992,124
  1,115,465
  1,245,802
  1,383,000
  1,526,959
  1,677,618
  1,834,958
  1,999,005
  2,169,831
  2,347,555
  2,532,342
  2,724,402
  2,923,990
  3,131,404
Tax expense, $m
  2,301
  5,873
  9,295
  13,818
  19,636
  26,933
  35,883
  46,634
  59,311
  74,011
  90,799
  110,204
  131,260
  154,448
  179,744
  207,111
  236,503
  267,874
  301,176
  336,366
  373,410
  412,279
  452,957
  495,439
  539,731
  585,854
  633,840
  683,732
  735,589
  789,477
  845,479
Net income, $m
  10,217
  15,878
  25,131
  37,361
  53,089
  72,820
  97,016
  126,084
  160,361
  200,104
  245,494
  297,959
  354,888
  417,582
  485,975
  559,966
  639,434
  724,251
  814,290
  909,435
  1,009,590
  1,114,680
  1,224,661
  1,339,520
  1,459,274
  1,583,977
  1,713,715
  1,848,609
  1,988,814
  2,134,513
  2,285,925

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
  53,002
  76,737
  108,047
  148,264
  198,673
  260,460
  334,665
  422,148
  523,576
  639,412
  769,927
  915,215
  1,075,226
  1,249,789
  1,438,651
  1,641,507
  1,858,027
  2,087,890
  2,330,799
  2,586,505
  2,854,821
  3,135,630
  3,428,896
  3,734,665
  4,053,071
  4,384,333
  4,728,757
  5,086,734
  5,458,737
  5,845,318
Adjusted assets (=assets-cash), $m
  35,512
  53,002
  76,737
  108,047
  148,264
  198,673
  260,460
  334,665
  422,148
  523,576
  639,412
  769,927
  915,215
  1,075,226
  1,249,789
  1,438,651
  1,641,507
  1,858,027
  2,087,890
  2,330,799
  2,586,505
  2,854,821
  3,135,630
  3,428,896
  3,734,665
  4,053,071
  4,384,333
  4,728,757
  5,086,734
  5,458,737
  5,845,318
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
  14,969
  21,672
  30,514
  41,872
  56,108
  73,558
  94,514
  119,221
  147,865
  180,579
  217,438
  258,470
  303,659
  352,958
  406,295
  463,585
  524,733
  589,649
  658,250
  730,465
  806,241
  885,546
  968,368
  1,054,722
  1,144,644
  1,238,197
  1,335,467
  1,436,565
  1,541,624
  1,650,800
Working capital, $m
  31,526
  3,093
  4,478
  6,305
  8,651
  11,593
  15,198
  19,528
  24,632
  30,551
  37,310
  44,925
  53,403
  62,739
  72,925
  83,945
  95,782
  108,416
  121,828
  136,002
  150,923
  166,579
  182,964
  200,076
  217,918
  236,497
  255,826
  275,923
  296,811
  318,517
  341,074
Total debt, $m
  0
  2,819
  6,664
  11,737
  18,252
  26,418
  36,428
  48,449
  62,621
  79,052
  97,818
  118,961
  142,498
  168,420
  196,699
  227,295
  260,157
  295,233
  332,471
  371,822
  413,247
  456,714
  502,205
  549,714
  599,249
  650,830
  704,495
  760,292
  818,284
  878,548
  941,175
Total liabilities, $m
  5,767
  8,586
  12,431
  17,504
  24,019
  32,185
  42,195
  54,216
  68,388
  84,819
  103,585
  124,728
  148,265
  174,187
  202,466
  233,062
  265,924
  301,000
  338,238
  377,589
  419,014
  462,481
  507,972
  555,481
  605,016
  656,597
  710,262
  766,059
  824,051
  884,315
  946,942
Total equity, $m
  59,194
  44,416
  64,306
  90,543
  124,245
  166,488
  218,266
  280,449
  353,760
  438,757
  535,828
  645,199
  766,950
  901,039
  1,047,323
  1,205,590
  1,375,583
  1,557,027
  1,749,652
  1,953,209
  2,167,491
  2,392,340
  2,627,658
  2,873,415
  3,129,649
  3,396,473
  3,674,071
  3,962,698
  4,262,683
  4,574,422
  4,898,376
Total liabilities and equity, $m
  64,961
  53,002
  76,737
  108,047
  148,264
  198,673
  260,461
  334,665
  422,148
  523,576
  639,413
  769,927
  915,215
  1,075,226
  1,249,789
  1,438,652
  1,641,507
  1,858,027
  2,087,890
  2,330,798
  2,586,505
  2,854,821
  3,135,630
  3,428,896
  3,734,665
  4,053,070
  4,384,333
  4,728,757
  5,086,734
  5,458,737
  5,845,318
Debt-to-equity ratio
  0.000
  0.060
  0.100
  0.130
  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
  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
  15,878
  25,131
  37,361
  53,089
  72,820
  97,016
  126,084
  160,361
  200,104
  245,494
  297,959
  354,888
  417,582
  485,975
  559,966
  639,434
  724,251
  814,290
  909,435
  1,009,590
  1,114,680
  1,224,661
  1,339,520
  1,459,274
  1,583,977
  1,713,715
  1,848,609
  1,988,814
  2,134,513
  2,285,925
Depreciation, amort., depletion, $m
  2,342
  3,060
  3,618
  4,355
  5,302
  6,488
  7,942
  9,688
  11,747
  14,134
  16,860
  18,120
  21,539
  25,305
  29,413
  33,858
  38,632
  43,728
  49,137
  54,854
  60,872
  67,187
  73,795
  80,697
  87,893
  95,387
  103,183
  111,289
  119,714
  128,469
  137,567
Funds from operations, $m
  16,866
  18,937
  28,749
  41,716
  58,391
  79,308
  104,958
  135,773
  172,108
  214,238
  262,355
  316,079
  376,427
  442,887
  515,388
  593,824
  678,066
  767,978
  863,427
  964,289
  1,070,462
  1,181,867
  1,298,457
  1,420,217
  1,547,167
  1,679,364
  1,816,898
  1,959,898
  2,108,527
  2,262,982
  2,423,492
Change in working capital, $m
  758
  1,020
  1,385
  1,827
  2,347
  2,941
  3,605
  4,330
  5,105
  5,918
  6,759
  7,616
  8,478
  9,337
  10,186
  11,020
  11,837
  12,634
  13,412
  14,174
  14,920
  15,656
  16,385
  17,112
  17,842
  18,579
  19,329
  20,097
  20,888
  21,706
  22,557
Cash from operations, $m
  16,108
  17,918
  27,364
  39,889
  56,044
  76,366
  101,353
  131,443
  167,003
  208,320
  255,596
  308,463
  367,949
  433,551
  505,202
  582,803
  666,229
  755,345
  850,015
  950,116
  1,055,541
  1,166,211
  1,282,072
  1,403,105
  1,529,326
  1,660,785
  1,797,569
  1,939,801
  2,087,639
  2,241,275
  2,400,935
Maintenance CAPEX, $m
  0
  -836
  -1,247
  -1,806
  -2,543
  -3,489
  -4,676
  -6,130
  -7,876
  -9,935
  -12,322
  -15,048
  -18,120
  -21,539
  -25,305
  -29,413
  -33,858
  -38,632
  -43,728
  -49,137
  -54,854
  -60,872
  -67,187
  -73,795
  -80,697
  -87,893
  -95,387
  -103,183
  -111,289
  -119,714
  -128,469
New CAPEX, $m
  -4,491
  -4,939
  -6,703
  -8,842
  -11,358
  -14,236
  -17,449
  -20,956
  -24,707
  -28,645
  -32,714
  -36,859
  -41,031
  -45,189
  -49,299
  -53,337
  -57,289
  -61,148
  -64,916
  -68,601
  -72,215
  -75,776
  -79,304
  -82,822
  -86,353
  -89,922
  -93,553
  -97,270
  -101,098
  -105,059
  -109,176
Cash from investing activities, $m
  -11,739
  -5,775
  -7,950
  -10,648
  -13,901
  -17,725
  -22,125
  -27,086
  -32,583
  -38,580
  -45,036
  -51,907
  -59,151
  -66,728
  -74,604
  -82,750
  -91,147
  -99,780
  -108,644
  -117,738
  -127,069
  -136,648
  -146,491
  -156,617
  -167,050
  -177,815
  -188,940
  -200,453
  -212,387
  -224,773
  -237,645
Free cash flow, $m
  4,369
  12,143
  19,414
  29,240
  42,143
  58,641
  79,228
  104,357
  134,420
  169,740
  210,560
  256,556
  308,798
  366,822
  430,598
  500,053
  575,082
  655,564
  741,371
  832,377
  928,472
  1,029,562
  1,135,580
  1,246,487
  1,362,275
  1,482,969
  1,608,629
  1,739,348
  1,875,253
  2,016,503
  2,163,290
Issuance/(repayment) of debt, $m
  -312
  2,819
  3,845
  5,072
  6,515
  8,166
  10,009
  12,021
  14,172
  16,431
  18,765
  21,143
  23,537
  25,922
  28,279
  30,596
  32,863
  35,076
  37,238
  39,351
  41,424
  43,467
  45,491
  47,509
  49,535
  51,582
  53,664
  55,797
  57,992
  60,264
  62,626
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
  2,819
  3,845
  5,072
  6,515
  8,166
  10,009
  12,021
  14,172
  16,431
  18,765
  21,143
  23,537
  25,922
  28,279
  30,596
  32,863
  35,076
  37,238
  39,351
  41,424
  43,467
  45,491
  47,509
  49,535
  51,582
  53,664
  55,797
  57,992
  60,264
  62,626
Total cash flow (excl. dividends), $m
  3,996
  14,962
  23,259
  34,313
  48,658
  66,807
  89,237
  116,378
  148,593
  186,172
  229,325
  277,699
  332,335
  392,744
  458,878
  530,649
  607,945
  690,640
  778,608
  871,728
  969,897
  1,073,030
  1,181,072
  1,293,996
  1,411,809
  1,534,551
  1,662,293
  1,795,145
  1,933,245
  2,076,767
  2,225,916
Retained Cash Flow (-), $m
  -14,976
  -14,671
  -19,890
  -26,238
  -33,702
  -42,243
  -51,777
  -62,183
  -73,311
  -84,997
  -97,071
  -109,371
  -121,752
  -134,089
  -146,284
  -158,267
  -169,993
  -181,444
  -192,625
  -203,558
  -214,282
  -224,849
  -235,318
  -245,757
  -256,234
  -266,824
  -277,597
  -288,628
  -299,985
  -311,738
  -323,955
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
 
  29,740
  3,369
  8,075
  14,957
  24,564
  37,460
  54,194
  75,281
  101,175
  132,255
  168,328
  210,583
  258,655
  312,594
  372,382
  437,952
  509,196
  585,984
  668,171
  755,615
  848,181
  945,753
  1,048,240
  1,155,575
  1,267,727
  1,384,696
  1,506,517
  1,633,260
  1,765,029
  1,901,961
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
 
  28,514
  3,085
  7,027
  12,315
  19,040
  27,186
  36,613
  47,053
  58,120
  69,336
  79,937
  89,863
  98,345
  104,943
  109,325
  111,293
  110,793
  107,915
  102,879
  96,016
  87,730
  78,473
  68,703
  58,856
  49,316
  40,399
  32,334
  25,269
  19,267
  14,321
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. provides various products to connect and share through mobile devices, personal computers, and other surfaces worldwide. Its solutions include Facebook Website and mobile application that enables people to connect, share, discover, and communicate each other on mobile devices and personal computers; Instagram, a mobile application that 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, a messaging application to communicate with people and businesses across platforms and devices; and WhatsApp Messenger, a mobile messaging application. The company also offers Oculus virtual reality technology and content platform, which allow people to enter an immersive and interactive environment to play games, consume content, and connect with others. As of December 31, 2016, it had approximately 1.23 billion daily active users. Facebook, Inc. was founded in 2004 and is headquartered in Menlo Park, California.

FINANCIAL RATIOS  of  Facebook Cl A (FB)

Valuation Ratios
P/E Ratio 48
Price to Sales 17.8
Price to Book 8.3
Price to Tangible Book
Price to Cash Flow 30.5
Price to Free Cash Flow 42.2
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 49.2% 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 2871.56 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 $487.1 billion.

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▶ How Facebooks Ad Business Is Performing   [10:37AM  Market Realist]
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▶ [$$] HTC Joins Facebook in Slashing VR Headset Price   [03:00AM  The Wall Street Journal]
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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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