Intrinsic value of Facebook Cl A - FB

Previous Close

$158.78

  Intrinsic Value

$701.43

stock screener

  Rating & Target

str. buy

+342%

Previous close

$158.78

 
Intrinsic value

$701.43

 
Up/down potential

+342%

 
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 0001), $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 380.9

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  41.90
  38.21
  34.89
  31.90
  29.21
  26.79
  24.61
  22.65
  20.88
  19.30
  17.87
  16.58
  15.42
  14.38
  13.44
  12.60
  11.84
  11.15
  10.54
  9.98
  9.49
  9.04
  8.63
  8.27
  7.94
  7.65
  7.38
  7.15
  6.93
  6.74
Revenue, $m
  57,687
  79,729
  107,545
  141,852
  183,287
  232,388
  289,580
  355,167
  429,341
  512,186
  603,694
  703,784
  812,319
  929,126
  1,054,015
  1,186,794
  1,327,282
  1,475,325
  1,630,802
  1,793,632
  1,963,779
  2,141,257
  2,326,129
  2,518,510
  2,718,565
  2,926,509
  3,142,606
  3,367,168
  3,600,552
  3,843,159
Variable operating expenses, $m
  22,405
  30,198
  40,033
  52,162
  66,811
  84,170
  104,390
  127,578
  153,802
  183,091
  213,433
  248,819
  287,191
  328,488
  372,642
  419,585
  469,254
  521,594
  576,562
  634,129
  694,284
  757,030
  822,391
  890,406
  961,135
  1,034,652
  1,111,052
  1,190,445
  1,272,957
  1,358,729
Fixed operating expenses, $m
  4,268
  4,362
  4,458
  4,556
  4,656
  4,758
  4,863
  4,970
  5,079
  5,191
  5,305
  5,422
  5,541
  5,663
  5,788
  5,915
  6,045
  6,178
  6,314
  6,453
  6,595
  6,740
  6,889
  7,040
  7,195
  7,353
  7,515
  7,680
  7,849
  8,022
Total operating expenses, $m
  26,673
  34,560
  44,491
  56,718
  71,467
  88,928
  109,253
  132,548
  158,881
  188,282
  218,738
  254,241
  292,732
  334,151
  378,430
  425,500
  475,299
  527,772
  582,876
  640,582
  700,879
  763,770
  829,280
  897,446
  968,330
  1,042,005
  1,118,567
  1,198,125
  1,280,806
  1,366,751
Operating income, $m
  31,013
  45,169
  63,055
  85,135
  111,821
  143,460
  180,327
  222,619
  270,460
  323,903
  384,956
  449,543
  519,586
  594,975
  675,586
  761,294
  851,983
  947,553
  1,047,926
  1,153,050
  1,262,900
  1,377,486
  1,496,850
  1,621,064
  1,750,235
  1,884,503
  2,024,039
  2,169,043
  2,319,746
  2,476,408
EBITDA, $m
  35,936
  51,204
  70,494
  94,306
  123,084
  157,201
  196,955
  242,558
  294,144
  351,769
  415,431
  485,070
  560,593
  641,878
  728,793
  821,204
  918,985
  1,022,029
  1,130,250
  1,243,593
  1,362,033
  1,485,579
  1,614,274
  1,748,200
  1,887,470
  2,032,236
  2,182,680
  2,339,020
  2,501,505
  2,670,413
Interest expense (income), $m
  11
  0
  232
  530
  907
  1,372
  1,933
  2,598
  3,373
  4,262
  5,266
  6,389
  7,628
  8,984
  10,454
  12,037
  13,729
  15,527
  17,430
  19,436
  21,542
  23,748
  26,053
  28,457
  30,961
  33,567
  36,277
  39,094
  42,021
  45,063
  48,225
Earnings before tax, $m
  31,013
  44,937
  62,524
  84,228
  110,449
  141,526
  177,728
  219,246
  266,198
  318,637
  378,567
  441,914
  510,602
  584,521
  663,549
  747,565
  836,456
  930,123
  1,028,491
  1,131,508
  1,239,152
  1,351,434
  1,468,393
  1,590,102
  1,716,668
  1,848,226
  1,984,945
  2,127,022
  2,274,683
  2,428,183
Tax expense, $m
  8,374
  12,133
  16,882
  22,741
  29,821
  38,212
  47,987
  59,196
  71,873
  86,032
  102,213
  119,317
  137,863
  157,821
  179,158
  201,843
  225,843
  251,133
  277,692
  305,507
  334,571
  364,887
  396,466
  429,328
  463,500
  499,021
  535,935
  574,296
  614,164
  655,609
Net income, $m
  22,640
  32,804
  45,643
  61,486
  80,627
  103,314
  129,742
  160,049
  194,324
  232,605
  276,354
  322,597
  372,740
  426,700
  484,391
  545,722
  610,613
  678,990
  750,798
  826,001
  904,581
  986,547
  1,071,927
  1,160,775
  1,253,168
  1,349,205
  1,449,010
  1,552,726
  1,660,518
  1,772,573

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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
Total assets, $m
  66,079
  91,327
  123,190
  162,488
  209,951
  266,195
  331,706
  406,835
  491,799
  586,696
  691,516
  806,167
  930,491
  1,064,291
  1,207,348
  1,359,443
  1,520,369
  1,689,949
  1,868,044
  2,054,562
  2,249,461
  2,452,757
  2,664,524
  2,884,891
  3,114,049
  3,352,244
  3,599,778
  3,857,009
  4,124,344
  4,402,244
Adjusted assets (=assets-cash), $m
  66,079
  91,327
  123,190
  162,488
  209,951
  266,195
  331,706
  406,835
  491,799
  586,696
  691,516
  806,167
  930,491
  1,064,291
  1,207,348
  1,359,443
  1,520,369
  1,689,949
  1,868,044
  2,054,562
  2,249,461
  2,452,757
  2,664,524
  2,884,891
  3,114,049
  3,352,244
  3,599,778
  3,857,009
  4,124,344
  4,402,244
Revenue / Adjusted assets
  0.873
  0.873
  0.873
  0.873
  0.873
  0.873
  0.873
  0.873
  0.873
  0.873
  0.873
  0.873
  0.873
  0.873
  0.873
  0.873
  0.873
  0.873
  0.873
  0.873
  0.873
  0.873
  0.873
  0.873
  0.873
  0.873
  0.873
  0.873
  0.873
  0.873
Average production assets, $m
  30,285
  41,858
  56,461
  74,472
  96,226
  122,004
  152,029
  186,463
  225,404
  268,897
  316,939
  369,487
  426,468
  487,791
  553,358
  623,067
  696,823
  774,546
  856,171
  941,657
  1,030,984
  1,124,160
  1,221,218
  1,322,218
  1,427,246
  1,536,417
  1,649,868
  1,767,763
  1,890,290
  2,017,658
Working capital, $m
  4,384
  6,059
  8,173
  10,781
  13,930
  17,662
  22,008
  26,993
  32,630
  38,926
  45,881
  53,488
  61,736
  70,614
  80,105
  90,196
  100,873
  112,125
  123,941
  136,316
  149,247
  162,736
  176,786
  191,407
  206,611
  222,415
  238,838
  255,905
  273,642
  292,080
Total debt, $m
  4,294
  9,824
  16,802
  25,408
  35,802
  48,120
  62,467
  78,920
  97,527
  118,309
  141,265
  166,374
  193,601
  222,903
  254,232
  287,541
  322,784
  359,922
  398,925
  439,772
  482,455
  526,977
  573,354
  621,614
  671,800
  723,964
  778,174
  834,508
  893,054
  953,914
Total liabilities, $m
  14,471
  20,001
  26,979
  35,585
  45,979
  58,297
  72,644
  89,097
  107,704
  128,486
  151,442
  176,551
  203,778
  233,080
  264,409
  297,718
  332,961
  370,099
  409,102
  449,949
  492,632
  537,154
  583,531
  631,791
  681,977
  734,141
  788,351
  844,685
  903,231
  964,091
Total equity, $m
  51,607
  71,327
  96,212
  126,903
  163,972
  207,898
  259,063
  317,738
  384,095
  458,210
  540,074
  629,617
  726,714
  831,212
  942,939
  1,061,725
  1,187,408
  1,319,850
  1,458,942
  1,604,613
  1,756,829
  1,915,604
  2,080,993
  2,253,100
  2,432,072
  2,618,103
  2,811,427
  3,012,324
  3,221,112
  3,438,152
Total liabilities and equity, $m
  66,078
  91,328
  123,191
  162,488
  209,951
  266,195
  331,707
  406,835
  491,799
  586,696
  691,516
  806,168
  930,492
  1,064,292
  1,207,348
  1,359,443
  1,520,369
  1,689,949
  1,868,044
  2,054,562
  2,249,461
  2,452,758
  2,664,524
  2,884,891
  3,114,049
  3,352,244
  3,599,778
  3,857,009
  4,124,343
  4,402,243
Debt-to-equity ratio
  0.080
  0.140
  0.170
  0.200
  0.220
  0.230
  0.240
  0.250
  0.250
  0.260
  0.260
  0.260
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
Adjusted equity ratio
  0.781
  0.781
  0.781
  0.781
  0.781
  0.781
  0.781
  0.781
  0.781
  0.781
  0.781
  0.781
  0.781
  0.781
  0.781
  0.781
  0.781
  0.781
  0.781
  0.781
  0.781
  0.781
  0.781
  0.781
  0.781
  0.781
  0.781
  0.781
  0.781
  0.781

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  22,640
  32,804
  45,643
  61,486
  80,627
  103,314
  129,742
  160,049
  194,324
  232,605
  276,354
  322,597
  372,740
  426,700
  484,391
  545,722
  610,613
  678,990
  750,798
  826,001
  904,581
  986,547
  1,071,927
  1,160,775
  1,253,168
  1,349,205
  1,449,010
  1,552,726
  1,660,518
  1,772,573
Depreciation, amort., depletion, $m
  4,923
  6,035
  7,439
  9,171
  11,263
  13,742
  16,629
  19,940
  23,684
  27,866
  30,475
  35,528
  41,006
  46,903
  53,207
  59,910
  67,002
  74,476
  82,324
  90,544
  99,133
  108,092
  117,425
  127,136
  137,235
  147,732
  158,641
  169,977
  181,759
  194,006
Funds from operations, $m
  27,562
  38,839
  53,082
  70,657
  91,890
  117,056
  146,370
  179,989
  218,008
  260,471
  306,829
  358,125
  413,746
  473,603
  537,598
  605,633
  677,615
  753,465
  833,122
  916,545
  1,003,714
  1,094,639
  1,189,352
  1,287,911
  1,390,403
  1,496,938
  1,607,651
  1,722,703
  1,842,277
  1,966,579
Change in working capital, $m
  1,295
  1,675
  2,114
  2,607
  3,149
  3,732
  4,347
  4,985
  5,637
  6,296
  6,955
  7,607
  8,249
  8,877
  9,492
  10,091
  10,677
  11,251
  11,816
  12,375
  12,931
  13,488
  14,050
  14,621
  15,204
  15,804
  16,423
  17,067
  17,737
  18,438
Cash from operations, $m
  26,268
  37,164
  50,968
  68,050
  88,741
  113,324
  142,024
  175,004
  212,371
  254,175
  299,874
  350,518
  405,497
  464,726
  528,107
  595,542
  666,938
  742,214
  821,306
  904,169
  990,783
  1,081,151
  1,175,301
  1,273,290
  1,375,199
  1,481,134
  1,591,228
  1,705,636
  1,824,540
  1,948,141
Maintenance CAPEX, $m
  -2,053
  -2,912
  -4,025
  -5,429
  -7,161
  -9,252
  -11,731
  -14,618
  -17,929
  -21,673
  -25,856
  -30,475
  -35,528
  -41,006
  -46,903
  -53,207
  -59,910
  -67,002
  -74,476
  -82,324
  -90,544
  -99,133
  -108,092
  -117,425
  -127,136
  -137,235
  -147,732
  -158,641
  -169,977
  -181,759
New CAPEX, $m
  -8,939
  -11,572
  -14,604
  -18,011
  -21,753
  -25,778
  -30,025
  -34,433
  -38,941
  -43,494
  -48,042
  -52,547
  -56,981
  -61,324
  -65,567
  -69,709
  -73,756
  -77,723
  -81,625
  -85,486
  -89,327
  -93,176
  -97,058
  -101,000
  -105,029
  -109,171
  -113,451
  -117,895
  -122,526
  -127,368
Cash from investing activities, $m
  -10,992
  -14,484
  -18,629
  -23,440
  -28,914
  -35,030
  -41,756
  -49,051
  -56,870
  -65,167
  -73,898
  -83,022
  -92,509
  -102,330
  -112,470
  -122,916
  -133,666
  -144,725
  -156,101
  -167,810
  -179,871
  -192,309
  -205,150
  -218,425
  -232,165
  -246,406
  -261,183
  -276,536
  -292,503
  -309,127
Free cash flow, $m
  15,276
  22,680
  32,340
  44,610
  59,827
  78,294
  100,267
  125,953
  155,501
  189,008
  225,977
  267,496
  312,989
  362,395
  415,637
  472,625
  533,271
  597,489
  665,205
  736,360
  810,912
  888,842
  970,151
  1,054,865
  1,143,034
  1,234,728
  1,330,044
  1,429,100
  1,532,036
  1,639,014
Issuance/(repayment) of debt, $m
  4,294
  5,529
  6,978
  8,606
  10,394
  12,317
  14,347
  16,453
  18,607
  20,782
  22,956
  25,109
  27,227
  29,302
  31,330
  33,309
  35,243
  37,138
  39,003
  40,847
  42,683
  44,522
  46,377
  48,260
  50,186
  52,165
  54,210
  56,333
  58,546
  60,860
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
Cash from financing (excl. dividends), $m  
  4,294
  5,529
  6,978
  8,606
  10,394
  12,317
  14,347
  16,453
  18,607
  20,782
  22,956
  25,109
  27,227
  29,302
  31,330
  33,309
  35,243
  37,138
  39,003
  40,847
  42,683
  44,522
  46,377
  48,260
  50,186
  52,165
  54,210
  56,333
  58,546
  60,860
Total cash flow (excl. dividends), $m
  19,571
  28,209
  39,318
  53,216
  70,221
  90,611
  114,614
  142,406
  174,108
  209,790
  248,932
  292,604
  340,216
  391,698
  446,966
  505,934
  568,514
  634,627
  704,208
  777,207
  853,595
  933,364
  1,016,528
  1,103,126
  1,193,219
  1,286,893
  1,384,254
  1,485,433
  1,590,583
  1,699,874
Retained Cash Flow (-), $m
  -15,211
  -19,719
  -24,885
  -30,692
  -37,069
  -43,927
  -51,164
  -58,675
  -66,357
  -74,114
  -81,865
  -89,542
  -97,097
  -104,498
  -111,728
  -118,786
  -125,683
  -132,442
  -139,092
  -145,670
  -152,216
  -158,774
  -165,389
  -172,107
  -178,972
  -186,030
  -193,324
  -200,897
  -208,789
  -217,040
Prev. year cash balance distribution, $m
  37,951
  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
  42,310
  8,490
  14,433
  22,525
  33,153
  46,685
  63,450
  83,730
  107,751
  135,676
  167,068
  203,062
  243,119
  287,200
  335,239
  387,148
  442,831
  502,185
  565,116
  631,537
  701,379
  774,589
  851,139
  931,019
  1,014,247
  1,100,862
  1,190,930
  1,284,537
  1,381,794
  1,482,834
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
  40,566
  7,772
  12,560
  18,547
  25,698
  33,881
  42,866
  52,334
  61,897
  71,130
  79,338
  86,654
  92,438
  96,418
  98,420
  98,383
  96,353
  92,482
  87,012
  80,249
  72,546
  64,271
  55,785
  47,419
  39,456
  32,118
  25,561
  19,874
  15,084
  11,165
Current shareholders' claim on cash, %
  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 44.9
Price to Sales 16.6
Price to Book 7.8
Price to Tangible Book
Price to Cash Flow 28.5
Price to Free Cash Flow 39.5
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 $40653 million for the last fiscal year's total revenue generated by Facebook Cl A. The default revenue input number comes from 0001 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 41.9% 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 40.3%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $4176 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 5.4% 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 52.5%.

Life of production assets of 10.4 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 7.6%. 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 - $74347 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 2398.61 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 $380.9 billion.

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COMPANY NEWS

▶ Will Zuckerberg stay on as Facebook chairman?   [05:04PM  Reuters Videos]
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▶ First look: Construction underway on Facebook's giant new Georgia data center   [Oct-14-18 11:52AM  American City Business Journals]
▶ [$$] Facebooks Orwellian Groupthink Triumphs   [Oct-12-18 08:08PM  The Wall Street Journal]

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