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Facebook ipo
Facebook ipo
Facebook ipo
Facebook ipo
Facebook ipo
Facebook ipo
Facebook ipo
Facebook ipo
Facebook ipo
Facebook ipo
Facebook ipo
Facebook ipo
Facebook ipo
Facebook ipo
Facebook ipo
Facebook ipo
Facebook ipo
Facebook ipo
Facebook ipo
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Facebook ipo

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financial ealuation of Facebook IPO

financial ealuation of Facebook IPO

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  • 1. 1 FACEBOOK IPO CFGB610 - Corporate Finance Prepared by : Alireza Khosroyar CGA110033
  • 2. 2 Agenda :  Company Description  Financial information  How Facebook makes money  How much Facebook is worth  Facebook valuation calculator  Facebook IPO  Compare to industry  reasons to not 'like' Facebook's IPO
  • 3. 3 Company Description • The firm was launched in 2004 byHarvard student Mark Zuckerberg as an online version of the Harvard Facebook. • Facebook lets users share information, post photos and videos, play games, and otherwise connect with one another through online profiles. • Facebook has about 850 million total users and about 480 million daily users. • the company had 3,200 full-time employees as of December 31, 2011. • That was a 50% increase from the previous year, and Facebook expect this growth to continue for the foreseeable future.
  • 4. 4Financial information
  • 5. 5 2 2.5 3 3.5 4 4.5 2007 2008 2009 2010 2011 ARPU ARPU : Average Revenue per user
  • 6. 6 • The company crossed the line into profitability in 2009, five years after it launched in founder Mark Zuckerberg's Harvard dorm room. Facebook earned $229 million that year on sales of $777 million, and has remained profitable ever since. Financial information
  • 7. 7 How Facebook makes money - Advertising : • 85% of Facebook's 2011 revenue, almost $3.2 billion, comes from advertising. – ( a combination of search and display ads) • Facebook has grown by grabbing market share from Google and Yahoo. Last year: – Facebook 16.3% of market – Yahoo's 13.1% – Google's 9.3% • research firm eMarketer estimated last September that Facebook's ad revenue will increase another 52% in 2012.
  • 8. 8How Facebook makes money - Apps and games: • Facebook allows outside developers to build apps that integrate with Facebook • Facebook Credits is a payment system for purchases within apps and games Facebook keeps 30% of the revenue from those payments, and passes the remaining 70% on to the app developer. • Revenue from Zynga, which makes FarmVille and other games played on Facebook, represented 12% of Facebook's total revenue in 2011.
  • 9. 9 How much Facebook is worth ? • He expects Facebook will be valued at $85 billion to $100 billion • But the value of Web companies can be changed quickly. • A recent example: Zynga ,The FarmVille maker's it valued its shares in at $17.20 each, which gave the company a valuation of $14 billion. But when Zynga went public , shares sold for just $10 valuing the company at $7 billion.
  • 10. 10Facebook valuation calculator This interactive calculator is a basic two-step discounted cash flow model to help illustrate how variations in key assumptions can change the potential market value and share price of an IPO. http://www.ft.com/intl/cms/s/2/ff589e40-8d3a-11e1-8b49- 00144feab49a.html#axzz1uARcyPjm
  • 11. 11 Facebook IPO • Facebook set a price range of $28 to $35 per share for its initial public offering. It also upped the maximum size of its offering to $13.6 billion, up from its previous $5 billion estimate (May 3, 2012) • Facebook will sell about 8.5% to 10% of its available shares in the offering. Based on those estimates, Facebook would raise between $7.2 billion and $10 billion from the sale of its stock. • To justify its stock price today, Facebook would need to record $68 billion in sales by the end of 2022 -- a 34% compound annual growth rate (CAGR) for a full decade, assuming it maintains its current margins
  • 12. 12Facebook IPO
  • 13. 13Facebook IPO
  • 14. 14Facebook IPO
  • 15. 15Compare to industry • At $100 billion, Facebook would trade at 27 times last year's sales ($100 billion/ $3.7 billion= 27) Google trades for just 5 times trailing sales Apple trades at only 4 times last year's sales. • At $100 billion, Facebook would give it a price-to-earnings ratio of 100 ($100 billion/ $1 billion= 100) Google is valued at about 20 times its 2011 profits. Microsoft is trading at only 11 times its net income for fiscal 2011.
  • 16. 16Compare to industry • let's assume that Facebook's profits increase 65% in 2012, A $100 billion market value would imply a P/E of about 60 on 2012 earnings forecasts. P/E on 2012 ($100 billion/ $1.65 billion= 60 ) • Think about Google. Right now it's trading at around 20 times earnings. That's a modest multiple and that's ultimately where Facebook may deserve to be," Robak said. • A P/E of 20 times the 2012 earnings forecast gives you a market value of $33 billion. Market value= $1.65 billion x 20= $33 billion • But even if we give Facebook a fat premium of say, 40 times earnings, you still only get to a value of $66 billion. • IT means : that investors are betting on the next few years, • not the past few.
  • 17. 17 Conclusion : reasons to not 'like' Facebook's IPO 1- Slowing growth? Already? • Facebook's sales increased suddenly for the past few years. • Revenue rose by more than 150% in 2010. Sales were up nearly 90% last year. But in the first quarter of 2012, revenue was up just 45% from the same period a year ago • Facebook's first quarter sales fell 6% from the fourth quarter of 2011
  • 18. 18 2- Rising expenses • Facebook says in its IPO filing: – “Building great things means taking risks. This can be scary and prevents most companies from doing the bold things they should. However, in a world that's changing so quickly, you're guaranteed to fail if you don't take any risks.“ It can be seen : – Net income fell 12% in the first quarter as costs and expenses doubled from a year ago IT means: Facebook investors should be prepared for the company to make more big purchases; Facebook admitted as much in its IPO filing Conclusion : reasons to not 'like' Facebook's IPO
  • 19. 19 3- Facebook is a media company Facebook generates most of its money from advertising AND That is a changeable and inconsistent business - ARPU (average revenue per user ): Facebook : $1.21 in the first quarter of 2012 EBay : $12 in the first quarter of 2011 Conclusion : reasons to not 'like' Facebook's IPO
  • 20. 20 4- Everybody is gunning for Facebook - Facebook will not remain the undisputed leader in social forever. Competitor and risks: - Twitter - Google+ (a company that has $49.3 billion in cash .That's almost 13 times the amount Facebook has.) - if Facebook does decide to bulk up in China, it will face intense competition (Tencent, Sina and Renren ) - LinkedIn (professionals are using that site, and not Facebook) Conclusion : reasons to not 'like' Facebook's IPO
  • 21. 21 The demand for the Facebook IPO will probably be so hot that investors will buy first and ask questions later

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