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.
MAU Forecast Chart: asymptote at approx. 1.67 billion You are here.Bo Brustkern firstname.lastname@example.org
22% penetration of world population is reasonable Median 28% Median 20% Source: SocialBakers, 2012 Arcstone estimatesBo Brustkern email@example.com
Facebook’s Engagement is even more impressive than its GrowthBo Brustkern firstname.lastname@example.org
Facebook’s Engagement is very high Source: AppData, Feb 2012Bo Brustkern email@example.com
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
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
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
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
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
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
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
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
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