Intrinsic value of Facebook Cl A - FB

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$148.07

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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$148.07

 
Intrinsic value

$657.07

 
Up/down potential

+344%

 
Rating

str. buy

 
Value-price divergence* premium content

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*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 426.8

 

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
  50.80
  46.22
  42.10
  38.39
  35.05
  32.04
  29.34
  26.91
  24.72
  22.74
  20.97
  19.37
  17.94
  16.64
  15.48
  14.43
  13.49
  12.64
  11.87
  11.19
  10.57
  10.01
  9.51
  9.06
  8.65
  8.29
  7.96
  7.66
  7.40
  7.16
Revenue, $m
  27,638
  41,678
  60,942
  86,597
  119,840
  161,843
  213,705
  276,406
  350,776
  437,471
  536,969
  649,569
  775,407
  914,478
  1,066,663
  1,231,756
  1,409,497
  1,599,593
  1,801,752
  2,015,698
  2,241,192
  2,478,046
  2,726,133
  2,985,395
  3,255,849
  3,537,587
  3,830,782
  4,135,680
  4,452,608
  4,781,965
  5,124,221
Variable operating expenses, $m
 
  14,125
  19,816
  27,396
  37,217
  49,626
  64,947
  83,471
  105,442
  131,055
  160,449
  191,903
  229,079
  270,165
  315,125
  363,899
  416,409
  472,569
  532,293
  595,499
  662,117
  732,091
  805,384
  881,978
  961,878
  1,045,112
  1,131,731
  1,221,808
  1,315,438
  1,412,740
  1,513,853
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
  19,616
  25,444
  33,165
  43,130
  55,687
  71,159
  89,839
  111,969
  137,745
  167,306
  198,932
  236,284
  277,550
  322,694
  371,658
  424,361
  480,720
  540,648
  604,063
  670,895
  741,089
  814,606
  891,431
  971,567
  1,055,044
  1,141,911
  1,232,242
  1,326,133
  1,423,703
  1,525,090
Operating income, $m
  12,427
  22,062
  35,497
  53,432
  76,710
  106,157
  142,545
  186,567
  238,807
  299,726
  369,662
  450,637
  539,123
  636,928
  743,969
  860,099
  985,135
  1,118,873
  1,261,104
  1,411,635
  1,570,297
  1,736,957
  1,911,527
  2,093,964
  2,284,281
  2,482,543
  2,688,871
  2,903,438
  3,126,475
  3,358,262
  3,599,131
EBITDA, $m
  14,769
  25,135
  39,153
  57,864
  82,148
  112,864
  150,822
  196,741
  251,230
  314,772
  387,718
  470,287
  562,579
  664,591
  776,235
  897,360
  1,027,773
  1,167,260
  1,315,607
  1,472,610
  1,638,093
  1,811,918
  1,993,992
  2,184,273
  2,382,771
  2,589,555
  2,804,752
  3,028,543
  3,261,166
  3,502,916
  3,754,139
Interest expense (income), $m
  11
  0
  562
  1,336
  2,367
  3,703
  5,391
  7,475
  9,995
  12,984
  16,468
  20,467
  24,992
  30,049
  35,638
  41,754
  48,388
  55,531
  63,171
  71,295
  79,893
  88,955
  98,474
  108,444
  118,863
  129,732
  141,054
  152,837
  165,090
  177,827
  191,063
Earnings before tax, $m
  12,518
  22,062
  34,935
  52,096
  74,343
  102,453
  137,154
  179,092
  228,811
  286,743
  353,194
  430,171
  514,131
  606,879
  708,331
  818,345
  936,747
  1,063,341
  1,197,933
  1,340,340
  1,490,404
  1,648,002
  1,813,053
  1,985,520
  2,165,418
  2,352,811
  2,547,816
  2,750,601
  2,961,385
  3,180,435
  3,408,068
Tax expense, $m
  2,301
  5,957
  9,433
  14,066
  20,073
  27,662
  37,032
  48,355
  61,779
  77,420
  95,362
  116,146
  138,815
  163,857
  191,249
  220,953
  252,922
  287,102
  323,442
  361,892
  402,409
  444,961
  489,524
  536,091
  584,663
  635,259
  687,910
  742,662
  799,574
  858,717
  920,178
Net income, $m
  10,217
  16,105
  25,503
  38,030
  54,270
  74,791
  100,123
  130,737
  167,032
  209,322
  257,832
  314,025
  375,316
  443,022
  517,082
  597,392
  683,825
  776,239
  874,491
  978,448
  1,087,995
  1,203,042
  1,323,529
  1,449,430
  1,580,755
  1,717,552
  1,859,906
  2,007,939
  2,161,811
  2,321,718
  2,487,890

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
  53,571
  78,331
  111,307
  154,036
  208,025
  274,685
  355,278
  450,868
  562,302
  690,192
  834,921
  996,667
  1,175,421
  1,371,032
  1,583,235
  1,811,692
  2,056,032
  2,315,877
  2,590,872
  2,880,710
  3,185,149
  3,504,027
  3,837,269
  4,184,896
  4,547,027
  4,923,884
  5,315,784
  5,723,147
  6,146,484
  6,586,402
Adjusted assets (=assets-cash), $m
  35,512
  53,571
  78,331
  111,307
  154,036
  208,025
  274,685
  355,278
  450,868
  562,302
  690,192
  834,921
  996,667
  1,175,421
  1,371,032
  1,583,235
  1,811,692
  2,056,032
  2,315,877
  2,590,872
  2,880,710
  3,185,149
  3,504,027
  3,837,269
  4,184,896
  4,547,027
  4,923,884
  5,315,784
  5,723,147
  6,146,484
  6,586,402
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
  15,129
  22,122
  31,435
  43,502
  58,749
  77,575
  100,335
  127,332
  158,802
  194,920
  235,793
  281,473
  331,955
  387,199
  447,128
  511,647
  580,652
  654,036
  731,698
  813,553
  899,531
  989,586
  1,083,698
  1,181,873
  1,284,144
  1,390,574
  1,501,252
  1,616,297
  1,735,853
  1,860,092
Working capital, $m
  31,526
  3,126
  4,571
  6,495
  8,988
  12,138
  16,028
  20,730
  26,308
  32,810
  40,273
  48,718
  58,155
  68,586
  80,000
  92,382
  105,712
  119,969
  135,131
  151,177
  168,089
  185,853
  204,460
  223,905
  244,189
  265,319
  287,309
  310,176
  333,946
  358,647
  384,317
Total debt, $m
  0
  2,911
  6,923
  12,265
  19,187
  27,933
  38,732
  51,788
  67,274
  85,326
  106,044
  129,490
  155,693
  184,651
  216,340
  250,717
  287,727
  327,310
  369,405
  413,954
  460,908
  510,227
  561,885
  615,871
  672,186
  730,851
  791,902
  855,390
  921,383
  989,963
  1,061,230
Total liabilities, $m
  5,767
  8,678
  12,690
  18,032
  24,954
  33,700
  44,499
  57,555
  73,041
  91,093
  111,811
  135,257
  161,460
  190,418
  222,107
  256,484
  293,494
  333,077
  375,172
  419,721
  466,675
  515,994
  567,652
  621,638
  677,953
  736,618
  797,669
  861,157
  927,150
  995,730
  1,066,997
Total equity, $m
  59,194
  44,892
  65,642
  93,275
  129,082
  174,325
  230,186
  297,723
  377,828
  471,209
  578,381
  699,664
  835,207
  985,003
  1,148,925
  1,326,751
  1,518,198
  1,722,955
  1,940,705
  2,171,150
  2,414,035
  2,669,155
  2,936,375
  3,215,631
  3,506,943
  3,810,409
  4,126,215
  4,454,627
  4,795,997
  5,150,754
  5,519,405
Total liabilities and equity, $m
  64,961
  53,570
  78,332
  111,307
  154,036
  208,025
  274,685
  355,278
  450,869
  562,302
  690,192
  834,921
  996,667
  1,175,421
  1,371,032
  1,583,235
  1,811,692
  2,056,032
  2,315,877
  2,590,871
  2,880,710
  3,185,149
  3,504,027
  3,837,269
  4,184,896
  4,547,027
  4,923,884
  5,315,784
  5,723,147
  6,146,484
  6,586,402
Debt-to-equity ratio
  0.000
  0.060
  0.110
  0.130
  0.150
  0.160
  0.170
  0.170
  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
  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
  16,105
  25,503
  38,030
  54,270
  74,791
  100,123
  130,737
  167,032
  209,322
  257,832
  314,025
  375,316
  443,022
  517,082
  597,392
  683,825
  776,239
  874,491
  978,448
  1,087,995
  1,203,042
  1,323,529
  1,449,430
  1,580,755
  1,717,552
  1,859,906
  2,007,939
  2,161,811
  2,321,718
  2,487,890
Depreciation, amort., depletion, $m
  2,342
  3,073
  3,656
  4,432
  5,437
  6,708
  8,277
  10,173
  12,423
  15,046
  18,056
  19,649
  23,456
  27,663
  32,267
  37,261
  42,637
  48,388
  54,503
  60,975
  67,796
  74,961
  82,466
  90,308
  98,489
  107,012
  115,881
  125,104
  134,691
  144,654
  155,008
Funds from operations, $m
  16,866
  19,178
  29,158
  42,462
  59,708
  81,499
  108,399
  140,911
  179,456
  224,368
  275,887
  333,674
  398,772
  470,685
  549,348
  634,653
  726,463
  824,627
  928,994
  1,039,423
  1,155,791
  1,278,002
  1,405,994
  1,539,738
  1,679,245
  1,824,564
  1,975,787
  2,133,043
  2,296,502
  2,466,372
  2,642,898
Change in working capital, $m
  758
  1,053
  1,445
  1,924
  2,493
  3,150
  3,890
  4,703
  5,578
  6,502
  7,462
  8,445
  9,438
  10,430
  11,414
  12,382
  13,331
  14,257
  15,162
  16,046
  16,912
  17,764
  18,607
  19,445
  20,284
  21,130
  21,990
  22,867
  23,770
  24,702
  25,669
Cash from operations, $m
  16,108
  19,222
  27,714
  40,538
  57,215
  78,349
  104,510
  136,208
  173,878
  217,866
  268,425
  325,229
  389,334
  460,255
  537,934
  622,271
  713,132
  810,370
  913,832
  1,023,377
  1,138,879
  1,260,238
  1,387,388
  1,520,293
  1,658,961
  1,803,434
  1,953,797
  2,110,176
  2,272,733
  2,441,670
  2,617,228
Maintenance CAPEX, $m
  0
  -836
  -1,261
  -1,843
  -2,620
  -3,625
  -4,896
  -6,465
  -8,361
  -10,611
  -13,234
  -16,243
  -19,649
  -23,456
  -27,663
  -32,267
  -37,261
  -42,637
  -48,388
  -54,503
  -60,975
  -67,796
  -74,961
  -82,466
  -90,308
  -98,489
  -107,012
  -115,881
  -125,104
  -134,691
  -144,654
New CAPEX, $m
  -4,491
  -5,100
  -6,993
  -9,313
  -12,067
  -15,247
  -18,826
  -22,760
  -26,996
  -31,471
  -36,118
  -40,874
  -45,679
  -50,483
  -55,243
  -59,929
  -64,520
  -69,005
  -73,384
  -77,662
  -81,854
  -85,978
  -90,056
  -94,112
  -98,175
  -102,271
  -106,430
  -110,678
  -115,045
  -119,556
  -124,239
Cash from investing activities, $m
  -11,739
  -5,936
  -8,254
  -11,156
  -14,687
  -18,872
  -23,722
  -29,225
  -35,357
  -42,082
  -49,352
  -57,117
  -65,328
  -73,939
  -82,906
  -92,196
  -101,781
  -111,642
  -121,772
  -132,165
  -142,829
  -153,774
  -165,017
  -176,578
  -188,483
  -200,760
  -213,442
  -226,559
  -240,149
  -254,247
  -268,893
Free cash flow, $m
  4,369
  13,286
  19,460
  29,382
  42,528
  59,476
  80,788
  106,983
  138,520
  175,784
  219,074
  268,112
  324,006
  386,316
  455,028
  530,075
  611,352
  698,727
  792,061
  891,211
  996,049
  1,106,464
  1,222,371
  1,343,716
  1,470,478
  1,602,673
  1,740,356
  1,883,616
  2,032,584
  2,187,423
  2,348,335
Issuance/(repayment) of debt, $m
  -312
  2,911
  4,011
  5,342
  6,922
  8,746
  10,799
  13,056
  15,486
  18,052
  20,718
  23,446
  26,203
  28,958
  31,689
  34,377
  37,010
  39,583
  42,095
  44,549
  46,954
  49,319
  51,658
  53,985
  56,316
  58,665
  61,051
  63,488
  65,993
  68,581
  71,267
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
  2,911
  4,011
  5,342
  6,922
  8,746
  10,799
  13,056
  15,486
  18,052
  20,718
  23,446
  26,203
  28,958
  31,689
  34,377
  37,010
  39,583
  42,095
  44,549
  46,954
  49,319
  51,658
  53,985
  56,316
  58,665
  61,051
  63,488
  65,993
  68,581
  71,267
Total cash flow (excl. dividends), $m
  3,996
  16,198
  23,471
  34,724
  49,450
  68,223
  91,587
  120,039
  154,006
  193,836
  239,792
  291,558
  350,208
  415,274
  486,717
  564,452
  648,362
  738,310
  834,156
  935,761
  1,043,003
  1,155,784
  1,274,029
  1,397,701
  1,526,793
  1,661,339
  1,801,407
  1,947,104
  2,098,576
  2,256,003
  2,419,602
Retained Cash Flow (-), $m
  -14,976
  -15,147
  -20,749
  -27,634
  -35,807
  -45,242
  -55,861
  -67,537
  -80,105
  -93,382
  -107,171
  -121,283
  -135,543
  -149,797
  -163,922
  -177,826
  -191,448
  -204,757
  -217,750
  -230,446
  -242,884
  -255,120
  -267,220
  -279,257
  -291,311
  -303,466
  -315,806
  -328,413
  -341,370
  -354,757
  -368,652
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
 
  30,499
  2,722
  7,090
  13,643
  22,980
  35,726
  52,502
  73,901
  100,455
  132,621
  170,275
  214,666
  265,477
  322,795
  386,626
  456,914
  533,554
  616,406
  705,315
  800,119
  900,663
  1,006,810
  1,118,444
  1,235,482
  1,357,872
  1,485,601
  1,618,692
  1,757,207
  1,901,247
  2,050,950
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
 
  29,242
  2,492
  6,170
  11,234
  17,812
  25,928
  35,470
  46,190
  57,706
  69,528
  80,861
  91,605
  100,939
  108,368
  113,507
  116,112
  116,092
  113,517
  108,598
  101,671
  93,158
  83,539
  73,304
  62,926
  52,823
  43,342
  34,742
  27,187
  20,754
  15,443
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 41.9
Price to Sales 15.5
Price to Book 7.2
Price to Tangible Book
Price to Cash Flow 26.6
Price to Free Cash Flow 36.9
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 50.8% 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 19.3% 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 2882.65 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 $426.8 billion.


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COMPANY NEWS

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Stock chart of FB Financial statements of FB Annual reports 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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