Bo Brustkern                   Managing Director                   720-259-0472                   bo@arcstoneresearch.comC...
Important disclosures appear in the Appendix.Bo Brustkern 720-259-0472bo.brustkern@arcstoneresearch.com
Forecast Basis  Copyright © 2012 Arcstone Equity             Research
MAU Forecast Chart: asymptote at approx. 1.67 billion                        You                        are               ...
22% penetration of world population is reasonable                                                             Median 28%  ...
Facebook’s Engagement is even more impressive than its GrowthBo Brustkern 720-259-0472bo.brustkern@arcstoneresearch.com
Facebook’s Engagement is very high                                                  Source: AppData, Feb 2012Bo Brustkern ...
Facebook’s Powerful Monetization Engine is about to Start  Facebook is likely to pursue at least five attractive  revenue ...
Social Graph Ad NetworkHypothesis: Facebook will monetize a web-wide ad network.•  Similar to Google’s AdWords, but “Like”...
Network Influence AdvertisingHypothesis: Facebook will monetize individuals marketing their   passions•  This is the logic...
Social Graph-enabled SearchHypothesis: Facebook will monetize web-wide “social search”•  Social is a powerful feature of S...
Social/Mobile/Local Commerce (SoMoLoCo)Hypothesis: Facebook will monetize its positions in Social, Mobile and   Local•  Ap...
Facebook Credits as a Unified CurrencyHypothesis: Facebook Credits will become a worldwide currency,   extending to mobile...
Forecast Model   Copyright © 2012 Arcstone Equity              Research
In terms of Monetization, Facebook Has a lot of Headroom   Bo Brustkern 720-259-0472   bo.brustkern@arcstoneresearch   .com
2011 Revenue Build-UpBo Brustkern 720-259-0472bo.brustkern@arcstoneresearch.com
2012 Revenue Build-UpBo Brustkern 720-259-0472bo.brustkern@arcstoneresearch.com
2013 Revenue Build-UpBo Brustkern 720-259-0472bo.brustkern@arcstoneresearch.com
2009-2013 DetailBo Brustkern 720-259-0472bo.brustkern@arcstoneresearch.com
2009-2011 Revenue Similar to GOOG’s RampBo Brustkern 720-259-0472bo.brustkern@arcstoneresearch.com
2009-2017 Revenue Tracks GOOGBo Brustkern 720-259-0472bo.brustkern@arcstoneresearch.com
2009-2020 Income Statement Forecast DetailBo Brustkern 720-259-0472bo.brustkern@arcstoneresearch.com
2009-2013 Revenue/MAU is far below GOOG Benchmark                                Source: FB S-1, Arcstone estimatesBo Brus...
2011-2020 Revenue/MAU remains far below GOOG Benchmark   Bo Brustkern 720-259-0472   bo.brustkern@arcstoneresearch   .com
Shares Outstanding       and     the IPO    Copyright © 2012 Arcstone Equity               Research
Pro-forma Diluted Shares OutstandingBo Brustkern 720-259-0472bo.brustkern@arcstoneresearch.com
ValuationCopyright © 2012 Arcstone Equity           Research
RisksRelevance•   Facebook is valuable only if it remains relevant to its user base•   Relevance is measured in part by Me...
Risk mitigants•       Facebook is the dominant social utility platform•       Facebook is only beginning to monetize its m...
Discounted Cash Flow ModelBo Brustkern 720-259-0472bo.brustkern@arcstoneresearch.com
DCF Analysis SummaryBo Brustkern 720-259-0472bo.brustkern@arcstoneresearch.com
Valuation Table & Sensitivity AnalysisBo Brustkern 720-259-0472bo.brustkern@arcstoneresearch.com
TEV Multiples compared to GOOG circa 2004Bo Brustkern 720-259-0472bo.brustkern@arcstoneresearch.com
Multiples Comparison TableBo Brustkern 720-259-0472bo.brustkern@arcstoneresearch.com
Thank you.                    Bo Brustkern                    Managing Director                    720-259-0472           ...
Appendix:Disclosures relating to   this Presentation      Copyright © 2012 Arcstone Equity                 Research
This presentation is solely for informational purposes and is not intended to be used as the primary basis of investment d...
Bo Brustkern 720-259-0472bo.brustkern@arcstoneresearch.com
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Arcstone Slides - DM Event Facebook Valuation

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  • This presentation does not constituteinvestment advice.We are not a broker-dealer.We do not own Facebook stock.In the past we have rendered advice to individuals and institutions about the value of Facebook. These individuals and institutions may have purchased shares of Facebook.Our research herein is consistent with the information provided to our institutional clients.
  • Here you can see that we are at or near our forecast deflection point, where we start to trend toward the asymptote of 1.7 billion2013-2015: YoY growth is in the teens2016-2020: YoY growth below 10%
  • We conducteda country-by-country analysis of 212 sovereign nations, including the Vatican City and the Falkland Islands, which claims 20 unique users.We assumed reasonable increases in each locality.We assumed that China & India combined have fewer users than the United States (penetration rates of 5% and 10%)The median penetration rate of all countries moves from 20% today to 28% in 2020.
  • The ratio of DAUs to MAUs going up even with such growth on the MAU side. Not dabblers, these are committed users.
  • The ratio of DAUs to MAUs going up even with such growth on the MAU side. Not dabblers, these are committed users.Zynga top 5: CityVille, Texas HoldEm, Hidden Chronicles, CastleVille, FarmVilleEA: The Sims, Bejeweled, Pet Society, Zuma, Restaurant CityWooga: Diamond Dash, Bubble Island, Monster World, Magic Land, Happy Hospital
  • 425 million MAUs used FB mobile products in December 2011 (source: S-1)
  • If FB is so much like Google, but with crazy-good personal information that it can leverage, it will monetize a LOT more like GOOG than YHOO. Perhaps better than GOOG.
  • Revenue CAGR = 35%EBITDA CAGR = 34%Taxes 41% trending to 30% in 2020CapEx trending down from 16.3% to 12% in 2015Depreciation 8.7% trending to 12% in 2020
  • Post-offering, we anticipate approximately 2.45 billion diluted shares outstanding
  • Here’s why we believe a WACC of 10%-14% is reasonable: the comps suggest a WACC of 10% our forecast is based on a simple assumption: FB will track GOOG in its ability to monetize users we have shown ample evidence for why we believe this to be true if we are right on the money, a CAGR of 10%-14% can be expected. upside is presented where FB’s monetization engine outpaces our forecast. recall the $/MAU, where we show FB generates $34 per MAU in 2020 compared with GOOG’s $45 today. recall the evidence we provided to suggest that FB’s SoMoLoCo power will be unlike anything we’ve ever seen.We believe there is upside to our valuation
  • Comparing GOOG’s operating statistics as of its IPO date with FB’s current statistics and our valuation target.
  • Cite MoStan
  • Arcstone Slides - DM Event Facebook Valuation

    1. 1. Bo Brustkern Managing Director 720-259-0472 bo@arcstoneresearch.comCopyright © 2012 Arcstone Equity Research
    2. 2. Important disclosures appear in the Appendix.Bo Brustkern 720-259-0472bo.brustkern@arcstoneresearch.com
    3. 3. Forecast Basis Copyright © 2012 Arcstone Equity Research
    4. 4. MAU Forecast Chart: asymptote at approx. 1.67 billion You are here.Bo Brustkern 720-259-0472bo.brustkern@arcstoneresearch.com
    5. 5. 22% penetration of world population is reasonable Median 28% Median 20% Source: SocialBakers, 2012 Arcstone estimatesBo Brustkern 720-259-0472bo.brustkern@arcstoneresearch.com
    6. 6. Facebook’s Engagement is even more impressive than its GrowthBo Brustkern 720-259-0472bo.brustkern@arcstoneresearch.com
    7. 7. Facebook’s Engagement is very high Source: AppData, Feb 2012Bo Brustkern 720-259-0472bo.brustkern@arcstoneresearch.com
    8. 8. Facebook’s Powerful Monetization Engine is about to Start Facebook is likely to pursue at least five attractive revenue initiatives: 1. Social Graph Ad Network 2. Network Influence Advertising 3. Social Graph-enabled Search 4. SoLoMo Commerce 5. Facebook Credits as a Unified Currency Bo Brustkern 720-259-0472 bo.brustkern@arcstoneresearch .com
    9. 9. Social Graph Ad NetworkHypothesis: Facebook will monetize a web-wide ad network.• Similar to Google’s AdWords, but “Like”-based• Ad relevance will be determined by preferences and relationships• Compare with AdWords, which determines relevance by examining the links between sites. • Google has been a search silo • FB offers a different view on the web’s corpus of information• More than 7 million apps and websites are integrated with Facebook • The Like button is a Trojan Horse • The Like button streamlines cross-internet ad reachNote: FB’s COO, Sheryl Sandberg was one of the original product managers for AdWords at Google. This is the crown jewel of Facebook’s monetizaiton capabilities, which was launched in the fall of 2000. Enabling tech: Bo Brustkern 720-259-0472 bo.brustkern@arcstoneresearch .com
    10. 10. Network Influence AdvertisingHypothesis: Facebook will monetize individuals marketing their passions• This is the logical extension of Like-based advertising • The clout of individuals within networks will enable micro- sponsorships • There is a long tail of valuable opinions based on influence within one’s network • Product endorsements no longer will be the domain of professional athletes and celebrities• The implications for branded companies are significant • Major and minor brands will access true fanatics • The endorsement will come from you • The channel will be Facebook • Revenue share between Facebook and the “sponsored athlete” Enabling tech: Bo Brustkern 720-259-0472 bo.brustkern@arcstoneresearch .com
    11. 11. Social Graph-enabled SearchHypothesis: Facebook will monetize web-wide “social search”• Social is a powerful feature of Search. • Creating relevant personalized search results is very complex• Google is already integrating G+ into search rankings • to reduce the efficacy of search engine optimization (SEO), and • to preemptively develop a social graph-enabled search product• Facebook is well positioned to compete with Google+ in social search • Facebook accesses an entirely different corpus of data • Far more relevant • The result is more personalization• Developing search is very challenging and expensive • Approx 250 of FB’s >3000 people are former GOOG employees. • We believe MSFT’s Bing may provide the backbone for FB’s search Enabling Bo Brustkern 720-259-0472 bo.brustkern@arcstoneresearch tech: .com
    12. 12. Social/Mobile/Local Commerce (SoMoLoCo)Hypothesis: Facebook will monetize its positions in Social, Mobile and Local• Approximately 50% of MAUs regularly use Facebook mobile products• Marketing is most powerful when it is proximate to the purchase • Proximity of time & place• Combining Facebook’s Social awareness with mobility and locality awareness will be a powerful combination • Mobile push notifications about Likes and friends’ Likes to drive activity • Preference alerts: “Live music tonight at the Gorin Bros. hat shop.” • Friends nearby: “Mary Smith is meeting with friends at Joe in Grand Central Market.”Note FB’s fMC event in NY on 2/29: Related http://www.facebook.com/business/fmc Bo Brustkern 720-259-0472 bo.brustkern@arcstoneresearch tech: .com
    13. 13. Facebook Credits as a Unified CurrencyHypothesis: Facebook Credits will become a worldwide currency, extending to mobile p2p payments and replacing PayPal• Currently Facebook has a 30% take rate on all transactions occurring on its website. • This applies primarily to games and in-app purchases • Facebook Credits accounted for 15% of revenue in 2011• We believe Credits can be extended to other offerings on Facebook, the web, and the offline world. • Web-based unified payment platform (a la PayPal) will reduce the friction of payments and increase volume of transactions • The challenge is how to smoothly transition from a 30% take rate to a much lower take rate (~3%). Related Bo Brustkern 720-259-0472 bo.brustkern@arcstoneresearch tech: .com
    14. 14. Forecast Model Copyright © 2012 Arcstone Equity Research
    15. 15. In terms of Monetization, Facebook Has a lot of Headroom Bo Brustkern 720-259-0472 bo.brustkern@arcstoneresearch .com
    16. 16. 2011 Revenue Build-UpBo Brustkern 720-259-0472bo.brustkern@arcstoneresearch.com
    17. 17. 2012 Revenue Build-UpBo Brustkern 720-259-0472bo.brustkern@arcstoneresearch.com
    18. 18. 2013 Revenue Build-UpBo Brustkern 720-259-0472bo.brustkern@arcstoneresearch.com
    19. 19. 2009-2013 DetailBo Brustkern 720-259-0472bo.brustkern@arcstoneresearch.com
    20. 20. 2009-2011 Revenue Similar to GOOG’s RampBo Brustkern 720-259-0472bo.brustkern@arcstoneresearch.com
    21. 21. 2009-2017 Revenue Tracks GOOGBo Brustkern 720-259-0472bo.brustkern@arcstoneresearch.com
    22. 22. 2009-2020 Income Statement Forecast DetailBo Brustkern 720-259-0472bo.brustkern@arcstoneresearch.com
    23. 23. 2009-2013 Revenue/MAU is far below GOOG Benchmark Source: FB S-1, Arcstone estimatesBo Brustkern 720-259-0472bo.brustkern@arcstoneresearch.com
    24. 24. 2011-2020 Revenue/MAU remains far below GOOG Benchmark Bo Brustkern 720-259-0472 bo.brustkern@arcstoneresearch .com
    25. 25. Shares Outstanding and the IPO Copyright © 2012 Arcstone Equity Research
    26. 26. Pro-forma Diluted Shares OutstandingBo Brustkern 720-259-0472bo.brustkern@arcstoneresearch.com
    27. 27. ValuationCopyright © 2012 Arcstone Equity Research
    28. 28. RisksRelevance• Facebook is valuable only if it remains relevant to its user base• Relevance is measured in part by Metcalfe’s Law (size of network)• More important is engagement, including time on site, activity on site, and commerceEngagement• Engagement is determined by Facebook’s ability to provide entertainment value, information value and commercial value to its user base. It will do so by: • Continuing to encourage open sharing on the platform, • Promoting more and richer forms of user generated content (UGC) • Deepening connections and interactions • Limiting network noise, such as spam and poorly targeted advertising • Enabling businesses to serve the user base with relevant Bo Brustkern 720-259-0472 offerings bo.brustkern@arcstoneresearch .com
    29. 29. Risk mitigants• Facebook is the dominant social utility platform• Facebook is only beginning to monetize its market position • Constantly investing in an enhanced user experience • Facebook Connect and Platform are powerful tools for the Internet economy and have significant market share • Facebook is the largest display advertiser in the world • Facebook is already profitably leveraging data gathered from its users and their behaviors, and it has only just begun Bo Brustkern 720-259-0472 bo.brustkern@arcstoneresearch .com
    30. 30. Discounted Cash Flow ModelBo Brustkern 720-259-0472bo.brustkern@arcstoneresearch.com
    31. 31. DCF Analysis SummaryBo Brustkern 720-259-0472bo.brustkern@arcstoneresearch.com
    32. 32. Valuation Table & Sensitivity AnalysisBo Brustkern 720-259-0472bo.brustkern@arcstoneresearch.com
    33. 33. TEV Multiples compared to GOOG circa 2004Bo Brustkern 720-259-0472bo.brustkern@arcstoneresearch.com
    34. 34. Multiples Comparison TableBo Brustkern 720-259-0472bo.brustkern@arcstoneresearch.com
    35. 35. Thank you. Bo Brustkern Managing Director 720-259-0472 bo@arcstoneresearch.com Copyright © 2012 Arcstone Equity Research
    36. 36. Appendix:Disclosures relating to this Presentation Copyright © 2012 Arcstone Equity Research
    37. 37. This presentation is solely for informational purposes and is not intended to be used as the primary basis of investment decisions. ArcstoneEquity Research, LLC (“Arcstone”) has not assessed the suitability of the subject company for any person. Nothing in this presentationconstitutes investment, legal, accounting or tax advice or a representation that any investment or strategy is suitable or appropriate to individualcircumstances or otherwise constitutes a personal recommendation to the reader of this presentation. Arcstone does not offer advice on the taxconsequences of investment. This presentation is not an offer or the solicitation of an offer to sell or buy any security. Arcstone is not a broker-dealer and is not registered as an investment advisor. Any person using this presentation should consult with their financial advisers andindependent tax advisers before making any investment decision.Arcstone is a private company that is not affiliated with Facebook, Inc. Principals and employees of Arcstone do not own any shares ofFacebook. However, a principal of Arcstone has been engaged by a third party to advise it and others on the value of Facebook, and theArcstone principal has provided that advice. The third party and others may have entered into a transaction or transactions involving shares ofFacebook. The Arcstone principal will not purchase or sell shares of Facebook as part of the transactions. Arcstone believes that the analysisprovided by its principal to the third party was consistent with the information provided in this presentation. The analysis provided in thispresentation, however, is based on more recent, and more reliable, information about Facebook than was available to the Arcstone principal atthe time the analysis was provided to the third party, and therefore the two analyses are not identical.Information and opinions presented in this presentation were obtained or derived from sources Arcstone believes are reliable, but Arcstonemakes no representations as to their accuracy or completeness. Arcstone accepts no liability for loss arising from the use of the materialpresented in this presentation. This presentation is not to be relied upon in substitution for the exercise of independent judgment.Arcstone may have issued, and may in the future issue, other presentations that are inconsistent with, and reach different conclusions from, theinformation presented in this presentation. Those presentations reflect the different assumptions, views and analytical methods of the analystswho prepare them and Arcstone is under no obligation to ensure that such other presentations are brought to the attention of any recipient ofthis presentation. Arcstone may be involved in many activities that relate to companies mentioned in this presentation. These activities mayinclude business valuation, investment research, and/or advisory services.No representation or warranty, express or implied, is made regarding future performance. Past performance should not be taken as anindication or guarantee of future performance. Information, opinions and estimates contained in this presentation reflect a judgment at itsoriginal date of publication by Arcstone and are subject to change without notice. The price, value of and income from any of the securities orfinancial instruments mentioned in this presentation can fall as well as rise. Principal is not guaranteed. Equity prices are variable.Investments discussed in this presentation have a high level of volatility. High volatility investments may experience sudden and large falls intheir value causing losses when that investment is realized. Those losses may equal your original investment.This material is not directed to, intended for distribution to, or use by, any person or entity if Arcstone is prohibited or restricted by any legislationor regulation in any jurisdiction from making it available to such person or entity. The securities described in this presentation may not havebeen registered under the Securities Act of 1933, as amended, and, in such case, may not be offered or sold in the United States or to U.S.persons unless they have been so registered, or an exemption from the registration requirements is available.This presentation may not be may be altered in any way, reproduced, distributed, transmitted, provided or disclosed in any manner to any otherperson, in whole or in part, for any purpose without the prior written consent of Arcstone Equity Research, LLC. All material presented in thispresentation, unless specifically indicated otherwise, is under copyright to Arcstone. If this presentation is being distributed by an institutionother than Arcstone, or its affiliates, that institution is solely responsible for distribution. This presentation does not constitute investment adviceby Arcstone to the clients of the distributing institution, and neither Arcstone, its affiliates, and their respective officers, directors and employeesaccept any liability whatsoever for any direct or consequential loss arising from their use of this presentation or its content. Bo Brustkern 720-259-0472All trademarks, service marks and logos used in this presentation are trademarks or service marks or registered trademarks or service marks of bo.brustkern@arcstoneresearchArcstone or its affiliates. Copyright 2012 Arcstone Equity Research, LLC. All Rights Reserved. Additional information is available upon .comrequest.
    38. 38. Bo Brustkern 720-259-0472bo.brustkern@arcstoneresearch.com

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