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Facebook ipo


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