Facebook, Inc. Valuation Analysis                                    March 20th, 2012Copyright © 2012 PrivCo Media LLC. Al...
PrivCo – Who We Are  Our Market: Over 90% of Major Corporations Are Private                                               ...
Selected Major Privately-Held CompaniesCopyright © 2012 PrivCo Media LLC. All Rights Reserved.
PrivCo Private Company                    Financial AnalysisCopyright © 2012 PrivCo Media LLC. All Rights Reserved.
Facebook Strengths                               User Stickiness                     450                                  ...
Facebook Weaknesses: Flat Usage                                   Facebook Unique Visitors (USA)                          ...
Facebook Weaknesses: Weak User Monetization                    Revenue Per User    $45                                    ...
Facebook Weaknesses: Undesirable Ad Updates                                        • Introduction of new, more intrusive a...
Facebook Opportunities                                 Virtual Goods Revenue                                         Growt...
Facebook Risks   •    Privacy Issues and User Backlash:         – New, more intrusive ad formats create strong            ...
Facebook Threats    •   Competition from emerging Social Media Networks including Tumblr,        Pinterest, and (to a less...
Facebook Valuation: Public Comparables               Revenue         Enterprise Valuation    Rev Multiple                 ...
Facebook Valuation: Projected Financials                                                   2014          2013             ...
PrivCo Conclusions    •   Facebook has growth opportunities ahead:          –   Growth and maturity of Facebook Credits an...
Privco Slides - DM Event, FB Valuation
Upcoming SlideShare
Loading in …5
×

Privco Slides - DM Event, FB Valuation

811 views

Published on

Published in: Technology, Business
0 Comments
1 Like
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total views
811
On SlideShare
0
From Embeds
0
Number of Embeds
2
Actions
Shares
0
Downloads
11
Comments
0
Likes
1
Embeds 0
No embeds

No notes for slide

Privco Slides - DM Event, FB Valuation

  1. 1. Facebook, Inc. Valuation Analysis March 20th, 2012Copyright © 2012 PrivCo Media LLC. All Rights Reserved.
  2. 2. PrivCo – Who We Are Our Market: Over 90% of Major Corporations Are Private Private  There are over 150,000 firms Public operating in the United States alone that bring in over $10 million in annual revenues, yet business databases focus almost exclusively on the same 15,000 publicly-traded companies.  PrivCo is dedicated to producing intelligent, in-depth business and financial research on the other 90% of major business.Copyright © 2012 PrivCo Media LLC. All Rights Reserved.
  3. 3. Selected Major Privately-Held CompaniesCopyright © 2012 PrivCo Media LLC. All Rights Reserved.
  4. 4. PrivCo Private Company Financial AnalysisCopyright © 2012 PrivCo Media LLC. All Rights Reserved.
  5. 5. Facebook Strengths User Stickiness 450 • Stickiness compared to 400 the competition 350 300 • High Switching Costs Avg. min/user Users have a high barrier to switching 250 to another network, which can involve 200 rebuilding their own network. 150 100 • “network effects” As more users join, the more useful 50 and valuable the network becomes 0 Facebook Pinterest Tumblr Twitter Avg min/user as of Jan 2012Copyright © 2012 PrivCo Media LLC. All Rights Reserved.
  6. 6. Facebook Weaknesses: Flat Usage Facebook Unique Visitors (USA) 200 • US unique visitors flat for MM 180 past several months 160 • Facebook’s “F-Commerce” Unique Visitors (millions) 140 120 Failure: Key brands including J.C. 100 Penny, Nordstrom, and GameStop have 80 closed their Facebook storefront. 60 • Facebook growth slows in 40 20 key emerging markets 0 such as ChinaCopyright © 2012 PrivCo Media LLC. All Rights Reserved.
  7. 7. Facebook Weaknesses: Weak User Monetization Revenue Per User $45 – Click through rates among the $40 lowest in the industry $35 – “display ad syndrome”: Not as $30 effective as search result ads $25 (Google) resulting in lack of context $20 and purchase intent $15 – Ads on Facebook have been $10 described as approaching a group $5 of friends at a bar and trying to sell $0 them something, a social faux pas. eBay Google Yahoo Facebook In short, no amount of demographic ad targeting can change Facebook’s structural advertising issue, limiting its potential for growth.Copyright © 2012 PrivCo Media LLC. All Rights Reserved.
  8. 8. Facebook Weaknesses: Undesirable Ad Updates • Introduction of new, more intrusive ad formats is a clear response to poor ad performance • Total sidebar ads increase to up to 7 slots per page • New ads on logout page Facebook’s recent ad changes are one time revenue infusions for its anticipated IPO and following quarters, but will not be repeatable in 2013 and beyond.Copyright © 2012 PrivCo Media LLC. All Rights Reserved.
  9. 9. Facebook Opportunities Virtual Goods Revenue Growth • Virtual Goods Revenue (Facebook $4.00 Credits): Facebook’s key revenue Billions $3.50 driver moving forward, represents a possible shift away from reliance on $3.00 ad model. Total Revenue $2.50 • New, more intrusive ad formats $2.00 could marginally improve ad $1.50 conversions. $1.00 • Facebook is currently under- $0.50 monetized in emerging markets $0.00 (e.g. India and Latin America), 2011 2010 2009 presenting a potential region for ad Advertising Revenue Virtual Goods Revenue revenue growth.Copyright © 2012 PrivCo Media LLC. All Rights Reserved.
  10. 10. Facebook Risks • Privacy Issues and User Backlash: – New, more intrusive ad formats create strong disincentive for users to Like a brand, which may cause brands to re-evaluate the way they advertise on Facebook. – The added annoyance of the intrusive ads will also create disincentives to add more friends, which adds to the trend of fewer friends per user (now at a meager avg. 150 friends/user). – These privacy issues prompt users to share less information than previously shared, a huge red flag for any social medium.Facebook’s recent changes in UI and advertisements may prompt userbacklash and advertiser pullbacks, threatening user stickiness factor.Copyright © 2012 PrivCo Media LLC. All Rights Reserved.
  11. 11. Facebook Threats • Competition from emerging Social Media Networks including Tumblr, Pinterest, and (to a lesser extent) Google+ with an established and loyal user base. • Recently announced Yahoo! lawsuit claiming 10 patent infringements on technologies related to advertising, privacy, site customization, and social networking. Yahoo! did the same to Google in 2004 and succeeded in obtaining shares just before Google’s IPO.Copyright © 2012 PrivCo Media LLC. All Rights Reserved.
  12. 12. Facebook Valuation: Public Comparables Revenue Enterprise Valuation Rev Multiple • Using Google’s 4.5x revenue Google $37,905,000,000 $170,493,000,000 4.50 multiple and adding 2.5x for Facebook’s present monopoly on Yahoo! $4,984,199,000 $19,059,049,000 social media gives Facebook an 3.82 upper limit valuation of just under AOL $2,202,100,000 $1,964,900,000 0.89 $26B as of December 2011. Operating Income Enterprise Valuation OI Multiple • Using Yahoo’s midpoint operating Google $11,742,000,000 $170,493,000,000 17.31 income multiple of 23x and applying that to Facebook’s 2011 Yahoo! $800,341,000 $19,059,049,000 23.02 OI pegs Facebook’s valuation at $40B AOL $45,800,000 $1,964,900,000 37.55Copyright © 2012 PrivCo Media LLC. All Rights Reserved.
  13. 13. Facebook Valuation: Projected Financials 2014 2013 2012 2011 Advertising Revenue $8,000,000,000 6,500,000,000 4,500,000,000 3,154,000,000 Revenue from Virtual Goods/Other $3,000,000,000 1,800,000,000 1,000,000,000 557,000,000 Total Revenue $11,000,000,000 8,500,000,000 5,500,000,000 3,711,000,000 Operating Income (Loss) $3,300,000,000 2,800,000,000 2,400,000,000 1,756,000,000 Valuation $77,000,000,000 59,500,000,000 38,500,000,000 25,977,000,000 Price/Share* $41.045 $31.716 $20.522 $13.847 *Based on 1,875,999,533 Shares Outstanding Using our previous analysis and projected financials up to 2014, we see Facebook’s enterprise valuation at more reasonable revenue multiples.Copyright © 2012 PrivCo Media LLC. All Rights Reserved.
  14. 14. PrivCo Conclusions • Facebook has growth opportunities ahead: – Growth and maturity of Facebook Credits and online virtual goods revenue – Possibility of introducing of even more intrusive ads to improve ad revenue performance – Better monetization of emerging and underutilized market traffic, largely overseas – Better mobile ad monetization due to growth in the mobile media space • However, Facebook has enormous (and largely underappreciated) risks: – User backlash to new ad intrusiveness which may alienate corporate clients – Growth in mobile media consumption means reduced time on Facebook, never good for an ad based platform – Growth in the space also shortens time per visit, # of ad slots, and losing in Asia – Intense competition from emerging social media upstarts e.g. Pinterest and Tumblr – Facebook faces flattening user growth and decreasing revenue growth On a risk-adjusted basis, Facebook’s already bloated valuation has little upside, but an enormous downside.Copyright © 2012 PrivCo Media LLC. All Rights Reserved.

×