Intrinsic value of Facebook Cl A - FB

Previous Close

$181.29

  Intrinsic Value

$563.27

stock screener

  Rating & Target

str. buy

+211%

Previous close

$181.29

 
Intrinsic value

$563.27

 
Up/down potential

+211%

 
Rating

str. buy

*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

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

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
  47.30
  43.07
  39.26
  35.84
  32.75
  29.98
  27.48
  25.23
  23.21
  21.39
  19.75
  18.27
  16.95
  15.75
  14.68
  13.71
  12.84
  12.05
  11.35
  10.71
  10.14
  9.63
  9.17
  8.75
  8.37
  8.04
  7.73
  7.46
  7.21
  6.99
Revenue, $m
  27,638
  40,711
  58,245
  81,114
  110,182
  146,270
  190,118
  242,363
  303,516
  373,958
  453,940
  543,589
  642,925
  751,880
  870,317
  998,053
  1,134,877
  1,280,576
  1,434,943
  1,597,794
  1,768,984
  1,948,406
  2,136,007
  2,331,784
  2,535,793
  2,748,143
  2,969,003
  3,198,597
  3,437,204
  3,685,156
  3,942,836
Variable operating expenses, $m
 
  13,839
  19,020
  25,776
  34,363
  45,025
  57,979
  73,414
  91,480
  112,291
  135,920
  160,593
  189,940
  222,129
  257,119
  294,856
  335,278
  378,322
  423,926
  472,038
  522,612
  575,619
  631,042
  688,881
  749,151
  811,886
  877,135
  944,964
  1,015,456
  1,088,709
  1,164,835
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
  19,330
  24,648
  31,545
  40,276
  51,086
  64,191
  79,782
  98,007
  118,981
  142,777
  167,622
  197,145
  229,514
  264,688
  302,615
  343,230
  386,473
  432,281
  480,602
  531,390
  584,617
  640,264
  698,334
  758,840
  821,818
  887,315
  955,398
  1,026,151
  1,099,672
  1,176,072
Operating income, $m
  12,427
  21,380
  33,597
  49,569
  69,906
  95,184
  125,927
  162,581
  205,509
  254,977
  311,162
  375,967
  445,781
  522,367
  605,629
  695,438
  791,647
  894,103
  1,002,661
  1,117,193
  1,237,593
  1,363,789
  1,495,742
  1,633,450
  1,776,952
  1,926,325
  2,081,688
  2,243,199
  2,411,053
  2,585,485
  2,766,764
EBITDA, $m
  14,769
  24,424
  37,171
  53,835
  75,051
  101,421
  133,490
  171,725
  216,502
  268,101
  326,706
  392,411
  465,229
  545,111
  631,956
  725,630
  825,977
  932,841
  1,046,068
  1,165,526
  1,291,105
  1,422,729
  1,560,356
  1,703,987
  1,853,660
  2,009,457
  2,171,501
  2,339,956
  2,515,028
  2,696,961
  2,886,035
Interest expense (income), $m
  11
  0
  190
  445
  779
  1,202
  1,728
  2,367
  3,129
  4,020
  5,047
  6,213
  7,520
  8,967
  10,556
  12,282
  14,144
  16,138
  18,262
  20,512
  22,885
  25,381
  27,996
  30,730
  33,584
  36,558
  39,653
  42,872
  46,219
  49,696
  53,311
Earnings before tax, $m
  12,518
  21,380
  33,407
  49,124
  69,127
  93,982
  124,199
  160,214
  202,380
  250,957
  306,115
  369,754
  438,261
  513,399
  595,074
  683,157
  777,503
  877,965
  984,399
  1,096,681
  1,214,708
  1,338,409
  1,467,746
  1,602,720
  1,743,368
  1,889,768
  2,042,035
  2,200,327
  2,364,834
  2,535,788
  2,713,454
Tax expense, $m
  2,301
  5,773
  9,020
  13,263
  18,664
  25,375
  33,534
  43,258
  54,643
  67,758
  82,651
  99,834
  118,330
  138,618
  160,670
  184,452
  209,926
  237,051
  265,788
  296,104
  327,971
  361,370
  396,291
  432,734
  470,709
  510,237
  551,350
  594,088
  638,505
  684,663
  732,632
Net income, $m
  10,217
  15,608
  24,387
  35,860
  50,463
  68,607
  90,665
  116,956
  147,737
  183,198
  223,464
  269,921
  319,931
  374,782
  434,404
  498,704
  567,577
  640,914
  718,612
  800,577
  886,737
  977,038
  1,071,455
  1,169,986
  1,272,659
  1,379,530
  1,490,686
  1,606,238
  1,726,329
  1,851,125
  1,980,821

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
  52,327
  74,865
  104,259
  141,622
  188,008
  244,368
  311,520
  390,123
  480,666
  583,470
  698,700
  826,382
  966,427
  1,118,660
  1,282,844
  1,458,711
  1,645,985
  1,844,399
  2,053,720
  2,273,758
  2,504,378
  2,745,510
  2,997,152
  3,259,374
  3,532,318
  3,816,200
  4,111,308
  4,418,000
  4,736,704
  5,067,913
Adjusted assets (=assets-cash), $m
  35,512
  52,327
  74,865
  104,259
  141,622
  188,008
  244,368
  311,520
  390,123
  480,666
  583,470
  698,700
  826,382
  966,427
  1,118,660
  1,282,844
  1,458,711
  1,645,985
  1,844,399
  2,053,720
  2,273,758
  2,504,378
  2,745,510
  2,997,152
  3,259,374
  3,532,318
  3,816,200
  4,111,308
  4,418,000
  4,736,704
  5,067,913
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
  14,778
  21,143
  29,444
  39,996
  53,096
  69,013
  87,978
  110,176
  135,747
  164,780
  197,323
  233,382
  272,933
  315,925
  362,293
  411,961
  464,849
  520,884
  579,999
  642,141
  707,271
  775,371
  846,438
  920,493
  997,576
  1,077,748
  1,161,091
  1,247,705
  1,337,712
  1,431,250
Working capital, $m
  31,526
  3,053
  4,368
  6,084
  8,264
  10,970
  14,259
  18,177
  22,764
  28,047
  34,045
  40,769
  48,219
  56,391
  65,274
  74,854
  85,116
  96,043
  107,621
  119,835
  132,674
  146,130
  160,201
  174,884
  190,184
  206,111
  222,675
  239,895
  257,790
  276,387
  295,713
Total debt, $m
  0
  2,710
  6,361
  11,123
  17,176
  24,690
  33,821
  44,699
  57,433
  72,101
  88,755
  107,422
  128,107
  150,794
  175,456
  202,054
  230,544
  260,883
  293,026
  326,936
  362,582
  399,942
  439,006
  479,772
  522,252
  566,468
  612,457
  660,265
  709,949
  761,579
  815,235
Total liabilities, $m
  5,767
  8,477
  12,128
  16,890
  22,943
  30,457
  39,588
  50,466
  63,200
  77,868
  94,522
  113,189
  133,874
  156,561
  181,223
  207,821
  236,311
  266,650
  298,793
  332,703
  368,349
  405,709
  444,773
  485,539
  528,019
  572,235
  618,224
  666,032
  715,716
  767,346
  821,002
Total equity, $m
  59,194
  43,850
  62,737
  87,369
  118,679
  157,550
  204,781
  261,054
  326,923
  402,798
  488,948
  585,511
  692,508
  809,866
  937,437
  1,075,023
  1,222,400
  1,379,335
  1,545,607
  1,721,017
  1,905,409
  2,098,669
  2,300,738
  2,511,613
  2,731,355
  2,960,082
  3,197,975
  3,445,276
  3,702,284
  3,969,358
  4,246,911
Total liabilities and equity, $m
  64,961
  52,327
  74,865
  104,259
  141,622
  188,007
  244,369
  311,520
  390,123
  480,666
  583,470
  698,700
  826,382
  966,427
  1,118,660
  1,282,844
  1,458,711
  1,645,985
  1,844,400
  2,053,720
  2,273,758
  2,504,378
  2,745,511
  2,997,152
  3,259,374
  3,532,317
  3,816,199
  4,111,308
  4,418,000
  4,736,704
  5,067,913
Debt-to-equity ratio
  0.000
  0.060
  0.100
  0.130
  0.140
  0.160
  0.170
  0.170
  0.180
  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
  15,608
  24,387
  35,860
  50,463
  68,607
  90,665
  116,956
  147,737
  183,198
  223,464
  269,921
  319,931
  374,782
  434,404
  498,704
  567,577
  640,914
  718,612
  800,577
  886,737
  977,038
  1,071,455
  1,169,986
  1,272,659
  1,379,530
  1,490,686
  1,606,238
  1,726,329
  1,851,125
  1,980,821
Depreciation, amort., depletion, $m
  2,342
  3,044
  3,574
  4,266
  5,145
  6,237
  7,563
  9,144
  10,994
  13,124
  15,544
  16,444
  19,448
  22,744
  26,327
  30,191
  34,330
  38,737
  43,407
  48,333
  53,512
  58,939
  64,614
  70,536
  76,708
  83,131
  89,812
  96,758
  103,975
  111,476
  119,271
Funds from operations, $m
  16,866
  18,651
  27,962
  40,126
  55,608
  74,844
  98,228
  126,100
  158,731
  196,323
  239,008
  286,364
  339,379
  397,526
  460,731
  528,895
  601,908
  679,652
  762,019
  848,910
  940,248
  1,035,978
  1,136,069
  1,240,522
  1,349,366
  1,462,662
  1,580,498
  1,702,996
  1,830,304
  1,962,601
  2,100,092
Change in working capital, $m
  758
  980
  1,315
  1,715
  2,180
  2,707
  3,289
  3,918
  4,586
  5,283
  5,999
  6,724
  7,450
  8,172
  8,883
  9,580
  10,262
  10,927
  11,577
  12,214
  12,839
  13,457
  14,070
  14,683
  15,301
  15,926
  16,565
  17,220
  17,896
  18,596
  19,326
Cash from operations, $m
  16,108
  17,671
  26,646
  38,411
  53,428
  72,137
  94,940
  122,182
  154,144
  191,040
  233,009
  279,640
  331,929
  389,354
  451,848
  519,315
  591,646
  668,725
  750,441
  836,696
  927,409
  1,022,521
  1,121,999
  1,225,839
  1,334,066
  1,446,735
  1,563,934
  1,685,776
  1,812,409
  1,944,005
  2,080,766
Maintenance CAPEX, $m
  0
  -836
  -1,232
  -1,762
  -2,454
  -3,333
  -4,425
  -5,751
  -7,331
  -9,181
  -11,312
  -13,732
  -16,444
  -19,448
  -22,744
  -26,327
  -30,191
  -34,330
  -38,737
  -43,407
  -48,333
  -53,512
  -58,939
  -64,614
  -70,536
  -76,708
  -83,131
  -89,812
  -96,758
  -103,975
  -111,476
New CAPEX, $m
  -4,491
  -4,749
  -6,365
  -8,301
  -10,552
  -13,100
  -15,917
  -18,965
  -22,199
  -25,571
  -29,033
  -32,543
  -36,059
  -39,551
  -42,993
  -46,368
  -49,667
  -52,889
  -56,035
  -59,115
  -62,142
  -65,130
  -68,099
  -71,067
  -74,055
  -77,083
  -80,172
  -83,343
  -86,614
  -90,006
  -93,538
Cash from investing activities, $m
  -11,739
  -5,585
  -7,597
  -10,063
  -13,006
  -16,433
  -20,342
  -24,716
  -29,530
  -34,752
  -40,345
  -46,275
  -52,503
  -58,999
  -65,737
  -72,695
  -79,858
  -87,219
  -94,772
  -102,522
  -110,475
  -118,642
  -127,038
  -135,681
  -144,591
  -153,791
  -163,303
  -173,155
  -183,372
  -193,981
  -205,014
Free cash flow, $m
  4,369
  12,087
  19,050
  28,348
  40,422
  55,704
  74,598
  97,466
  124,614
  156,288
  192,664
  233,366
  279,426
  330,355
  386,111
  446,620
  511,787
  581,506
  655,669
  734,174
  816,934
  903,879
  994,960
  1,090,157
  1,189,474
  1,292,944
  1,400,630
  1,512,621
  1,629,037
  1,750,023
  1,875,752
Issuance/(repayment) of debt, $m
  -312
  2,710
  3,651
  4,762
  6,053
  7,514
  9,130
  10,879
  12,734
  14,668
  16,654
  18,667
  20,684
  22,687
  24,662
  26,598
  28,491
  30,338
  32,143
  33,910
  35,646
  37,360
  39,063
  40,766
  42,480
  44,217
  45,989
  47,808
  49,684
  51,630
  53,656
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
  2,710
  3,651
  4,762
  6,053
  7,514
  9,130
  10,879
  12,734
  14,668
  16,654
  18,667
  20,684
  22,687
  24,662
  26,598
  28,491
  30,338
  32,143
  33,910
  35,646
  37,360
  39,063
  40,766
  42,480
  44,217
  45,989
  47,808
  49,684
  51,630
  53,656
Total cash flow (excl. dividends), $m
  3,996
  14,797
  22,701
  33,110
  46,475
  63,219
  83,728
  108,344
  137,348
  170,956
  209,318
  252,033
  300,111
  353,042
  410,773
  473,218
  540,278
  611,844
  687,812
  768,084
  852,580
  941,239
  1,034,024
  1,130,923
  1,231,954
  1,337,161
  1,446,619
  1,560,429
  1,678,721
  1,801,653
  1,929,408
Retained Cash Flow (-), $m
  -14,976
  -14,105
  -18,886
  -24,632
  -31,310
  -38,871
  -47,230
  -56,274
  -65,869
  -75,875
  -86,150
  -96,563
  -106,997
  -117,358
  -127,571
  -137,586
  -147,377
  -156,935
  -166,271
  -175,411
  -184,392
  -193,260
  -202,069
  -210,876
  -219,742
  -228,727
  -237,893
  -247,301
  -257,008
  -267,074
  -277,553
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
 
  30,140
  3,815
  8,477
  15,165
  24,347
  36,498
  52,071
  71,479
  95,081
  123,168
  155,471
  193,113
  235,685
  283,202
  335,632
  392,901
  454,909
  521,541
  592,673
  668,189
  747,979
  831,955
  920,047
  1,012,212
  1,108,434
  1,208,726
  1,313,128
  1,421,713
  1,534,579
  1,651,855
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
 
  28,898
  3,492
  7,378
  12,487
  18,872
  26,488
  35,178
  44,676
  54,619
  64,572
  73,831
  82,408
  89,612
  95,076
  98,536
  99,844
  98,981
  96,047
  91,255
  84,906
  77,366
  69,030
  60,301
  51,554
  43,120
  35,265
  28,183
  21,996
  16,751
  12,438
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 51.3
Price to Sales 19
Price to Book 8.9
Price to Tangible Book
Price to Cash Flow 32.5
Price to Free Cash Flow 45.1
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 47.3% 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 2929.84 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 $531.2 billion.

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COMPANY NEWS

▶ PRESS DIGEST- Financial Times - Jan 22   [Jan-21-18 08:22PM  Reuters]
▶ Historian discusses the evolution of social networks   [10:40AM  Fox Business Videos]
▶ [$$] Facebook Loses Its Field Commander in China   [12:46AM  The Wall Street Journal]
▶ Business Highlights   [05:34PM  Associated Press]
▶ Wall Street Is Clueless on Facebook   [11:11AM  Motley Fool]
▶ IHOP Parent DineEquity Looks Mighty Tasty   [11:07AM  TheStreet.com]
▶ IHOP Parent DineEquity Looks Tasty to Me   [11:04AM  TheStreet.com]
▶ Trade of the Day: Snap Inc (SNAP)   [09:10AM  InvestorPlace]
▶ [$$] Facebook Loses Its Field Commander in China   [09:02AM  The Wall Street Journal]
▶ Several Stocks Move on Thursday   [02:37PM  GuruFocus.com]
▶ Will Facebooks Loss Be Twitters Gain?   [12:20PM  Market Realist]
Financial statements of FB
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