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Facebook, Inc.

Price target
Earnings Summary:
Fiscal Year ending Revenue, net ($MM) EBITDA ($MM) Diluted EPS P/E 12/11 3,711 2,296 $0.44 62x 12/12E 5,531 3,385 $0.40 69x 12/13E 7,327 4,411 $0.88 31x

US$27.40

(FB)
Facebook began as an extension to college life but has grown to become the global network of choice for connecting, socializing and sharing with friends. Excluding China, Facebook now connects 49% of the online population and is the dominant network in all but six nations. The companys vision of a social web has triggered a complete re-tooling of how sites are organized, as publishers yearning not to be left behind embrace social networking just to stay relevant. Advertisers have followed in suit, spending ad dollars to start conversations with customers, with little measure of its worth or benefit; in fact, connecting these two dots for advertisers seems to be the one challenge Facebook has failed to conqueras of yet! FY2011 Highlights
Revenue for FY2011 grew +88% Y/Y to $3.7B, with Online Advertising accounting for 85% of total. The remaining 15% was from Payments, which grew 425% due to the success of Zynga. Facebook attracted over 800 MM monthly active users, and it now accounts for 1 in every 7 minutes spent online, worldwide. It is estimated that Facebook delivered 7.8 trillion display ads during FY2011.

EV / EBITDA Premium to Comps

27.8x 250%

18.8x -35%

14.4x -16%

EV / Sales Premium to Comps

17.2x 169%

11.5x 154%

8.7x 138%

SUNIL ACHARYA SACHARYA.MBA2010@IVEY.CA 1.613.823.8468

Key Risks
1. Competition from existing social networks (Google+, Twitter, LinkedIn) 2. Members accelerate migration towards mobile 3. Advertisers see diminishing value in social ads 4. Members experience diminishing returns from social networking

Valuation
The $27.40 price target was arrived at using DCF analysis with a WACC of 11.15% and assumed perpetual growth of 6%. The key drivers for this analysis include a 4-year revenue CAGR of 32% with adjusted EBITDA margins dropping to 59%. This gives Facebook a market cap of $73B and a resulting FY2012E EV/EBITDA multiple of 19x.

Financial Outlook
The Market for Social Networking
Social networking sites now reach 82% of the worlds online population, or 1.2 billion users. As the reach has proliferated, so has engagement. Since March 2007 when only 6% of the time online was spent on social networking sites, the participation level increased 230% to nearly 1 in every 5 minutes in October 2011, as shown in Exhibit 1 (source: comScore).

Exhibit 2. Revenue Composition by Product Groups

15%
Online Advertising Payments

85%

Exhibit 1. Time Spent Online on Key Internet Categories

Online Advertising The key drivers for Online Advertising are 1) member count, 2) ad views per member and 3) revenue per thousand impressions, or RPM.

1. Member Count Facebooks MAU-count grew by 39% in FY2011 to reach 800MM+. Exhibit 3 shows the penetration of Facebook by region in terms of existing Internet users. With the total number of Internet users excluding China at 1.6B, Facebook is just short of 50% penetration worldwide.
Exhibit 3: Facebook Penetration of Internet Users by Region

The appeal of social networking has no boundaries. It has grown irrespective of geography, culture, or age group. Even the least tech-savvy age group of 55+ now experiences a penetration rate of 80% worldwide.

100% 80% 60%

Revenue
Facebook earns revenue through Online Advertising and Payments. It currently captures 4% of the $76B online advertising market; the market is set to grow at a CAGR of 12% over the next 4 years. Revenue for Payments is earned by collecting a 30% charge from online purchases within the Facebook platform. Thus far, this market seems limited to the confines of virtual goods, which is estimated at $8.5B. As a platform provider, Facebook faces a market opportunity of $2.6B (30%) for Payments; it currently captures 21% of this market. Exhibit 2 illustrates the composition of total revenue during FY2011.

40% 65% 20% 0% 32% 42% 47% 25% 67% 63% 49%

Aside for China and Iran who both block Facebook, there are only 5 markets where Facebook does not have the largest social network: Japan, Poland, Russia, South Korea, and Vietnam. In all these markets, Facebook has an increasing presence and will stand to benefit from citizens already accustomed to social networking.

Facebook overtook Orkut in India during 2010 and Brazil in early 2012 as the dominant social network in those regions. These two markets alone possess 100 MM additional potential members for Facebook. Capitalizing on these opportunities, and with increased exposure leading to higher adoption rates in smaller nations, I expect Facebook to add 455 MM members by 2015 (207MM were added in 2011 alone). This amounts to a global penetration rate of 81% or 1.3B users.

There is no drop at the moment because of a counteracting force. The 2% growth in ads delivered per MAU shows that the ads lost due to mobile have been absorbed by the ads gained due to higher engagement (perhaps attributable to the ever real-time information supplied from mobile updates!). Even in the U.S. where smartphone penetration is at 44%, the ads delivered per MAU statistic has grown slightly. Now with Sponsored Stories to be presented alongside all Facebook pictures, I expect the growth in ads per MAU to reach a high of 5% in FY2012 before declining to the pressure of mobile and reaching 2% by FY2015. Exhibit 4 shows the resulting 20% CAGR growth in total ads delivered by Facebook into FY2015.

2. Ad Views per Member I have inferred that Facebook delivered an astounding 7.8 trillion display ads worldwide in FY2011, a growth of 42% Y/Y. The number of ads displayed is directly related to the number of ads per page and the page views per member. a) Ads per Page In his letter to investors, Zuckerberg makes it clear that Facebook will not compromise user experience for financial gain. After the re-work to the delivery of ads in late 2010, there have been little changes to the quantity and prominence of ads on the Facebook website. No changes are expected for the foreseeable future. b) Page Views per Member According to comScore, the average Facebook user spent 6.3 hours on the site in October 2011, a growth of 40% Y/Y. However, ads delivered per MAU on an annual basis grew only 2% in 2011, proving that much of that growth has not been monetized. Perhaps mobile is to blame. Mobile remains a bitter-sweet topic for Facebook. An analysis of digital media consumption across a sample of U.S. iPhone and iPad owners showed that these devices increased the reach of social networking by 12.5% and the duration spent by 2.8 times (source: comScore). But even while mobile is increasing the potential pie for Facebook, it is also eating into the top line as members forego ads each time they access Facebook from their mobile. In December 2011, 425 MM or just over 50% of the members accessed Facebook through mobile. Furthermore, mobile MAUs are expected to grow faster than overall MAUs due to the growth in popularity of smartphones. This will effectively lead to a drop in ad delivery per MAU.

Exhibit 4: Projected Growth of Total Ads Delivered

16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0

Trillion

CAGR 20%
11.4 10.0 7.9 5.5

12.7

13.9

2010

2011

2012E

2013E

2014E

Facebook will not introduce ads into mobile in the conventional manner. The company would rather incorporate ads such as Sponsored Stories directly into the newsfeed so as not to detract from the user experience. This method of delivering ads, however, is new and will need to be proven at the website level before being deployed to mobile. Therefore, I do not expect ads to appear on mobile in the foreseeable future and have not included any such revenue into my model.

3. RPM Facebook does not report this statistic, and the current RPM of $0.45 is based on my own marketing campaigns on Facebook in the U.S. market. (This amount falls in the ballpark estimation by Trefis, a financial community that associates trends with market price.) This RPM is a stark contrast to LinkedIn display ads which earn a RPM of $5.27. 3

2015E

To date, Facebook has compromised innovating on the ad front in order to grow its member base and page views. However, both these aims have a growth ceiling. RPM, on the other hand, is boundless and only limited by the innovation Facebook is able to introduce into this newly developed market for social ads. Therefore, this third criterion is where Facebook has potential to grow its top line. There is substantial room for improvement, but Facebook is currently limited by the inability of brands to associate a financial benefit to social ads. It would seem that Facebook has waited too long to tackle this issue. The latest said innovation on delivering ads is Sponsored Stories, which is just a play onto the Sponsored Tweets originated by Twitter. It would have been easier for Facebook to test the success of this and other ad innovations before the IPO, but now every attempt will be scrutinized by the public and deemed a failure if modest results are not immediate. I predict only a steady growth in the RPM over the next four years, fuelled by minor improvements in the delivery of ads. The RPM will reach $0.60 by FY2015, which is still more generous than the $0.52 estimated by Trefis. Exhibit 5 summarizes the key drivers for Online Advertising over the four-year horizon, with revenue reaching $8.3B by FY2015.

Facebook in order to thrive is social games, with the most successful company being Zynga. Revenue from Payments is expected to increase at a 53% CAGR from FY2011 to FY2015 resulting from the continued forecast success of Zynga. At $3.1B of revenue in FY2015, this gives Facebook 57% of the market share for Platform providers to virtual goods.

Expenses
The lines between search and social are disappearing, and Google is in fact the biggest competitor to Facebook. They operate at a comparable scale and have a similar core business model of providing valuable content to attract viewers and advertisers. As such, I have modeled Facebooks expenses to converge towards the ratios currently experienced by Google. Gross Margin: The companys gross margin in FY2011 was 77%, which is substantially higher than the 66% recorded by Google. For Google, cost of revenues consists primarily of traffic acquisition costs through AdSense which enables Google to advertise on other sites. Much of the traffic acquisition for Facebook, however, is free as sites choose to integrate with Facebook to enhance the experience of its own viewers. Therefore, the gross margin should remain steady at 77% for the foreseeable future. Sales and Marketing: Facebooks Sales and Marketing expense at 12% of revenue was equal to that of Google in FY2011, and will remain steady at this rate.

Exhibit 5. Key Drivers for Online Advertising

2011A MAU Count (MM) Growth Y/Y Ad Views per MAU RPM ($) Revenue from OA ($MM) 845 39% 9,303 0.40 3,154

2015E 1300 7% 10,673 0.60 8,325

4-YR CAGR 11%

3.5% 11% 27%

Product Development: This expense was 10.5% of revenue in FY2011 but has shown a rising trend in the last three quarters. The need to innovate in order to compete will grow this expense to Googles level at 13% of revenue by FY2014. General & Administration: This expense has been comparable to that of Google, floating between 6-8% of revenue in the last two years. It will continue to be at 7% for the foreseeable future. Tax Rate: There is a vast discrepancy here with Google paying a 21% effective tax rate in FY2011, compared to 41% for Facebook. This is most likely attributable to the fact that Google earns substantial income in countries that have lower statutory tax rates. Currently, Facebook earns most of its revenue from North America and Europe, but the majority of growth in the future will 4

Payments Revenue from Payments is directly related to the ability of companies to collect revenue from members on the Facebook platform. The Open Graph, however, makes it possible for companies to collect revenue on their own site while still accessing the social richness of Facebook. The only business that seems to require the contours of

come from international revenue. Therefore, this gap should begin to narrow, and Facebook is expected to pay an effective tax rate of 25% by FY2015.

Exhibit 7 shows the calculation of the price target at $27.40. At a market cap of $73B, Facebook would trade at 14.4x FY2013 EV/EBITDA and at a price-to-earnings multiple of 31x on FY2013 EPS estimates.

Management
The executive team balances well around the young creative founder. Zuckerberg, aged 27, may seem young to be at the helm of the worlds largest network, but he does have the experience and record success of leading the company this far. He also has the benefit of Sheryl Sandberg as COO and David Fischer as VP of Marketing; both formerly holding the title of VP, Global Online Sales & Operations at Google. Management seems to understand and appreciate the sensitive divide between members and investors. In his letter to investors, Zuckerberg highlights that Facebook is not focused directly on maximizing shareholder value, but rather on earning money as a means to deliver better services. This is a welcomed stance for a company whose members are literally one-click away from the do no evil mantra held by Google. Facebook simply cannot afford to alienate its members for the sake of short-term gains.

Exhibit 7. DCF Price Target and Multiples Analysis

Weighted Average Cost of Capital % Assumed Perpetual Growth % Undiscounted Terminal Value ($MM) Net Present Value of Free Cash Flow to Enterprise Plus: Cash and cash equivalents Less: Net Debt Less: Minority Interest Implied Equity Value ($MM) Fully Diluted Shares Outstanding (MM) FAIR VALUE per Share

11.15% 6% 82,833 63,718 8,908 0 0 72,626 2,651 $ 27.40

Exhibit 8 highlights that under this valuation, Facebook would trade at a 138% premium to comparables based on the EV/Sales multiple of 8.7x for FY2013.

Valuation
The $27.40 price target was arrived at using a DCF model with a discount rate of 11.15% and a terminal growth rate of 6%. Exhibit 6 shows that revenue grew at a CAGR of 32% from FY2011 to FY2015, with 73% of the FY2015 revenue being earned from Advertising. EBITDA margins are expected to decrease by 267 basis points from FY2011-15 as Facebook invests to compete with Google in a future where companies may see little difference between search, mobile, and social networking.
Exhibit 6. DCF Analysis

Exhibit 8. EV/Sales Multiples of Facebook and Comparable Comp.


2011A Facebook EV to Sales Multiple 17.2x 2012E 11.5x 2013E 8.7x

Average of Selected Internet Companies Average of recent IPOs Overall Average of Comps

4.5x 9.6x 6.4x

3.6x 6.1x 4.5x

3.0x 4.7x 3.7x

Facebook Premium (Discount) Vs. Average of Selected Internet Companies Average of recent IPOs Overall Premium (Discount) Vs. Comps 285% 79% 169% 218% 90% 154% 188% 85% 138%

FY2011 Revenue : $MM Y/Y growth rate Adj EBITDA EBITDA - % of Revenue Cash taxes Capital Expenditures Change in Net WC FCFF ($MM) 3,711 88% 2,296 62% (695) (606) 5 1,000

FY2013E 7,327 32% 4,411 60% (1,011) (1120) (61) 2,219

FY2015E 11,412 23% 6,756 59% (1,284) (1458) 11 4,024

4Y-CAGR 32%

31%

25% 42%

Exhibit 9:

Facebook - Fully Diluted Share Count Calculation

Description Class A common stock outstanding before IPO Class A common stock issued for IPO Class B common stock outstanding before IPO Class B common stock from conversion of Preferred Class B common stock from vesting of pre-2011 RSUs Total Class A, B outstanding after IPO Options and other equivalents: Class B options at $0.19 per share weighted avg. exercise price RSUs Shares subject to repurchase Warrants Class B common stock reserved for future issuance Total Class A, B outstanding after IPO Class B options to be vested over time Class B RSU's to be vested over time Diluted total (including all RSUs): MM

Shares (MM) 110 167 1,184 548 188 2,197

245 93 3 2 52 2,540 14 98 2,651

Exhibit 10:

Facebook - Income Statement


FYA Q1A Q2A Q3A Sep-10 Q4A Dec-10 FYA Q1A Q2A Jun-11 Q3A Sep-11 Q4A Dec-11 FYA 2011 FYE 2012 FYE 2013 FYE 2014 FYE 2015

2009 Mar-10 Jun-10

2010 Mar-11

Net Revenue Sequential Change Growth Y/Y Costs and expenses: Cost of revenue Gross Profits Goss Margin

$777

$345

$432 25%

$467 8%

$731 57%

$1,974

$731 0%

$895 22%

$954 7%

$1,131 19%

$3,711

$5,531

$7,327

$9,243

$11,412

186%

154%

88%

49%

32%

26%

23%

223 554 71%

100 245 71%

111 321 74%

131 336 72%

150 581 79%

493 1,481 75%

167 564 77%

210 685 77%

236 718 75%

247 884 78%

860 2,851 77%

1,272 4,259 77%

1,685 5,642 77%

2,126 7,117 77%

2,625 8,787 77%

Sales and marketing Product development General and administrative Operating costs

115 87 90 292

36 25 22 83

44 32 26 102

45 41 34 120

59 45 40 144

184 144 121 449

68 57 51 176

103 99 76 278

124 108 72 304

132 124 80 336

427 388 280 1,095

906 1,189 532 2,627

879 879 513 2,271

1,109 1,202 647 2,958

1,369 1,484 799 3,652

Income (loss) from operations Add: Dep and ammort Add: Share based comp Adjusted EBITDA Adjusted EBITDA Margins Incremental Adjusted EBITDA Margins YOY Other income (expense), net Income (loss) before income taxes Provision (benefit) for income taxes Net income (loss) Less: Net Income Attributable to participating securities Net Income attributable to common stockholders

262 78 27 367 47%

162

219

216

437

1,032 139 20 1,191 60% 69%

388

407

414

548

1,756 323 217 2,296 62% 64% (61) 1,695 695 1,000 332 668

1,632 481 1,272 3,385 61% 60% 1,632 571 1,061 1,061

3,370 637 403 4,411 60% 57% 3,370 1,011 2,359 2,359

4,160 804 508 5,472 59% 55% 4,160 1,040 3,120 3,120

5,135 993 628 6,756 59% 59% 5,135 1,284 3,851 3,851

(8) 254 25 229

(24) 1,008 402 606 234 372

Basic EPS Diluted EPS Basic share count (MM) Diluted share count (MM)

$ 0.12 $ 0.10

$ 0.34 $ 0.28 1,107

$ $

0.52 0.44 $ 1,294 1,508 2,651 2,669 0.40 $ 0.88

Exhibit 11:

Facebook - Key Revenue Drivers


FYA 2009 Q1A Mar-10 Q2A Jun-10 Q3A Sep-10 Q4A Dec-10 FYA 2010 Q1A Mar-11 Q2A Jun-11 Q3A Sep-11 Q4A Dec-11 FYA 2011 FYE 2012E FYE 2013E FYE 2014E FYE 2015E

Advertising Revenue ($MM) Growth Y/Y Online: Monthly Active Users (MM) Growth Y/Y Online: Daily Active Users (MM) Mobile: Monthly Active Users (MM)

764

340

424

450

655

1,869 145% 608

637 87%

776 83%

798 77%

943 44%

3,154 69% 845 39%

4,506 43% 1,025 21%

5,715 27% 1,125 10%

6,993 22% 1,215 8%

8,325 19% 1,300 7%

327

483 425

Number of Ads delivered (B) Growth Y/Y Ads delivered per MAU Growth Y/Y RPM Growth Y/Y

1,821

5,536

2,112 16%

7,861 42% 9,303 2%

10,013 27% 9,769 5% 0.45 12%

11,429 14% 10,159 4% 0.50 11%

12,714 11% 10,464 3% 0.55 10%

13,875 9% 10,673 2% 0.60 9%

9,106

0.36

0.34

0.45 24%

0.40 18%

Online Advertising Market ($B) FB Share Mobile Advertising Market ($B)

68.0 2.7% 1.5

76.2 4.1% 2.5

85.3 5.3% 4.0

95.5 6.0% 6.6

107.0 6.5% 10.9

119.8 6.9% 17.8

Payments and Other Fees Revenue ($MM) Growth Y/Y Zynga Revenue ($MM) Virtual Goods Market ($B) FB Share

13

17

76

106 715%

94 1780%

119 1388% 275

156 818% 288

188 147%

557 425% 1,153 8.5 6.6%

1,025 84% 1,388 10.2 10.0%

1,612 57% 1,624 12.4 13.0%

2,251 40% 1,837 15.0 15.0%

3,087 37%

7.0 1.5%

18.2 17.0%

Net revenue ($MM) Growth Y/Y

$777

$345

$432

$467

$731

$1,974 154%

$731 112%

$895 107%

$954 104%

$1,131 55%

$3,711 88%

$5,531 49%

$7,327 32%

$9,243 26%

$11,412 23%

Exhibit 12:

Facebook - Key Cost Drivers


FYA 2009 Q1A Mar-10 Q2A Jun-10 Q3A Sep-10 Q4A Dec-10 FYA 2010 Q1A Mar-11 Q2A Jun-11 Q3A Sep-11 Q4A Dec-11 FYA 2011 FYE 2012E FYE 2013E FYE 2014E FYE 2015E

Gross Margin YOY Chg in bps

71% 1,689

71%

74%

72%

79%

75% 373

77% 614

77% 223

75% 331

78% (132)

77% 180

77% 17

77% -

77% -

77% -

Sales and marketing $ (MM) Sequential Change Growth Y/Y Sales and marketing as % of Sales YOY change in bps

115

36

44

45

59

184

68 15%

103 51%

124 20%

132 6%

427

906 112%

879 -3%

1,109 26%

1,369 23%

60% 15% 10% 10% 10% 8% 9% (548) 9% (113) 12% 132 13% 336 12% 360

132% 12% 219 16% 488 12% (438) 12% 12% -

Product development $ (MM) Growth Y/Y Prod dev as % of Sales YOY change in bps

87

25

32

41

45

144 66%

57 128% 7.8% 55

99 209% 11.1% 365

108 163% 11.3% 254

124 176% 11.0% 481

388 169% 10.5% 316

1,189 206% 21% 1,104

879 -26% 12% (949)

1,202 37% 13% 100

1,484 23% 13% 0

11%

7%

7%

9%

6%

7% (390)

General and administrative $ (MM) Sequential change $ G&A % of Sales YOY change in bps

90

22

26 4

34 8 7%

40 6 5%

121

51 11

76 25 8% 247

72 (4) 8% 27

80 8 7% 160

280

532

513

647

799

12%

6%

6%

6% (545)

7% 60

7.5% 142

9.6% 208

7.0% (262)

7.0% -

7.0% -

Effective Tax Rate

40%

41%

35%

30%

25%

25%

Exhibit 13:

Facebook - Balance Sheet


FYA 2010 Assets Current Assets : Cash and marketable securities Accounts receivable Prepaid expenses and other current assets Total Current Assets Property and equipment, net Goodwill and intangible assets, net Other assets Total Assets Liabilities and Stockholder's equity Current liabilities : Accounts Payable Platform Partners Payable Accrued liabilities Deferred revenue Current portion of capital lease obligations Total Current Liabilities Capital Lease obligations, less current portion Long term debt Other liabilities Total Liabilities Stockholders' Equity Convertible preferred stock Common Stock Additional paid-in capital Accumulated other comprehensive income Accumulated earnings (deficit) Total Stockholders' Equity Total Liabilities and Stockholders' Equity 615 947 (6) 606 2,162 2,990 615 2,684 (6) 1,606 4,899 6,331 9,322 (6) 2,667 11,983 13,882 9,427 (6) 5,026 14,447 16,553 9,638 (6) 8,145 17,777 20,264 9,973 (6) 11,997 21,964 24,865 29 75 137 42 106 389 117 250 72 828 63 171 296 90 279 899 398 135 1,432 93 253 590 134 300 1,371 450 79 1,899 123 335 599 178 300 1,535 450 121 2,106 156 423 770 224 300 1,872 450 164 2,487 192 522 950 277 300 2,241 450 210 2,902 1,785 373 88 2,246 574 96 74 2,990 3,908 547 149 4,604 1,475 162 90 6,331 10,582 815 297 11,695 1,936 162 90 13,882 12,501 1,080 302 13,883 2,418 162 90 16,553 15,304 1,362 387 17,054 2,958 162 90 20,264 19,029 1,682 478 21,189 3,424 162 90 24,865 FYA 2011 FYE 2012 FYE 2013 FYE 2014 FYE 2015

Balance Sheet Metrics Days Sales in Receivables Prepaid Expenses as % of Total Expenses PP&E as % of revenue Days COGS in Payables Days COGS in Platform Partners Payable Accrued Liabilities as % of Total Expenses Deferred tax liabilities as ratio of IT Deferred revenue as % of total 69 9.3% 29% 21 56 15% 5.6x 2% 54 7.6% 40% 27 73 15% 5.1x 2% 54 7.6% 35% 27 73 15% 7.2x 2% 54 7.6% 33% 27 73 15% 8.4x 2% 54 7.6% 32% 27 73 15% 6.3x 2% 54 7.6% 30% 27 73 15% 6.1x 2%

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Exhibit 14:

Facebook - Statement of Cash Flows


FYA 2009 Net income (loss) Depreciation and amortization Loss on write-off of equipment Share-based compensation Tax benefit from share-based award activity Excess income tax benefit Funds from Operations Changes in operating assets and liabilties: Accounts receivable Prepaid expenses and other assets Other Assets Accounts payable Platform partners payable Accrued expenses and other current liabilities Deferred revenue and deposits Other liabilties Net Cash provided by operating activities Purchases of property and equipment Change in Intangible Assets (Increase) decrease in restricted cash and deposits Net Cash used in investing activities Net Proceeds from issuance of redeemable conv preferred stock Net Proceeds from issuance of common stock Proceeds from exercise of stock options Proceeds from (repayments of) long-term debt Proceeds from sale and lease-back transactions Principal payments on capital lease obligations Excess tax benefit from share-based award activity Net cash provided by financing activities Effect of exchange rate changes Change in Cash and Cash Equivalents Cash and cash equivalents, beginning of period Cash and cash equivalents, end of period 31 (48) 51 243 336 297 633 27 1 1 155 (33) 3 (32) (62) 200 9 (112) (30) (59) (7) (209) (38) 17 12 75 20 37 16 698 (293) (22) (9) (324) 500 6 250 (90) 115 781 (3) 1,152 633 1,785 998 28 (250) 170 (181) 433 1,198 3 2,126 1,785 3,911 (174) (31) (32) 6 96 38 49 53 1,549 (606) (24) 6 (624) (268) (148) 30 82 294 44 44 2,892 (942) (942) 5,000 (279) 4,721 6,671 3,911 10,582 30 82 9 44 44 3,339 (1,120) (1,120) (300) (300) 1,919 10,582 12,501 (265) (4) (283) (86) 32 88 171 46 46 4,447 (1,344) (1,344) (300) (300) 2,803 12,501 15,304 (320) (91) 37 99 181 53 53 5,483 (1,458) (1,458) (300) (300) 3,724 15,304 19,029 229 78 1 27 50 (51) 334 FYA 2010 606 139 3 20 115 (115) 768 FYA 2011 1,000 323 4 217 433 (433) 1,544 FYE 2012 1,061 481 1,272 2,814 FYE 2013 2,359 637 403 3,400 FYE 2014 3,120 804 508 4,432 FYE 2015 3,851 993 628 5,472

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Exhibit 15:

Facebook - Comparables
P/E 2012 2013 95x 14x 16x 14x 17x 31x 52x 12x 13x 12x 14x 21x EV to EBITDA 2011 2012 2013 37x 11x 8x 13x 16x 17x 27x 9x 7x 11x 12x 13x 19x 8x 6x 9x 10x 10x EV to Sales 2011 2012 2013 1.7x 3.4x 2.7x 7.1x 7.4x 4.5x 1.3x 2.9x 2.4x 5.8x 5.7x 3.6x 1.0x 2.6x 2.1x 4.9x 4.5x 3.0x EBITDA Margins 2011 2012 2013 5% 32% 36% 55% 47% 35% 5% 32% 36% 54% 46% 35% 5% 33% 36% 54% 47% 35% Revenue Growth 2011 2012 2013 43% 27% 33% 33% 49% 37% 34% 18% 15% 23% 30% 24% 29% 13% 12% 18% 25% 19%

Company Internet Companies AMZN Amazon.com EBAY eBay Inc. ACOM Ancestry.com GOOG Google 700-HK Tencent Average Recent Internet IPOs GRPN Groupon LKND LinkedIn ZNGA Zynga Average Overall Average

Mkt Cap ($MM) 1/7/2012 83,043 39,541 1,204 210,534 284,559

$ $ $ $ $

Price 1/7/2012 182.61 30.63 27.33 650.02 154.80 209.08

2011 159x 16x 19x 17x 22x 47x

123,776 $

11,227 $ 7,700 $ 6,161 $ 8,363 $ 90,896

17.81 79.88 8.81 35.50 153.14

-40x 999x 92x 350x 160x

115x 170x 46x 110x 61x

45x 91x 28x 55x 33x

-128x 93x 14x -7x 8x

105x 51x 11x 56x 29x

42x 36x 8x 28x 17x

8.3x 16.7x 3.7x 9.6x 6.4x

5.6x 9.5x 3.1x 6.1x 4.5x

4.6x 6.9x 2.6x 4.7x 3.7x

-7% 18% 27% 13% 27%

5% 19% 29% 18% 28%

11% 19% 33% 21% 30%

411% 113% 37% 187% 93%

49% 75% 20% 48% 33%

22% 39% 17% 26% 22%

source: FactSet estimates

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Exhibit 16:

Facebook - Discounted Cash Flow Analysis ($MM)


Projected Calendar Year ending December 31,

Revenue Sequential Growth rate CAGR Adj EBITDA EBITDA as % of Net Revenue Cash taxes Capital Expenditures Change in Net Working Capital Unlevered Free Cash Flow

FYA 2010 1,974

FYA 2011 3,711 88% 2,296 62% (695) (606) 5 1,000

1,191 60% (402) (293) (70) 426

FYE 2012 5,531 49% 49% 3,385 61% (571) (942) 78 1,950

FYE 2013 7,327 32% 41% 4,411 60% (1,011) (1,120) (61) 2,219

FYE 2014 9,243 26% 36% 5,472 59% (1,040) (1,344) 15 3,103

FYE 2015 11,412 23% 32% 6,756 59% (1,284) (1,458) 11 4,024

DCF Valuation (in $MM) Weighted Average Cost of Capital % Assumed Perpetual Growth % Undiscounted Terminal Value Net Present Value of Free Cash Flow to Enterprise Plus: Cash and cash equivalents Less: Net Debt Less: Minority Interest Implied Equity Value Fully Diluted Shares Outstanding (MM) Implied Equity Value per Share $ 11.15% 6% 82,833 63,718 8,908 0 0 72,626 2,651 27.40 $ 27.40 10.15% 10.65% 11.15% 11.65% 12.15%

Perpetuity Growth Rate / Terminal Value at 11.15% WACC 5.0% 68,710 5.5% 75,146 6.0% 82,833 6.5% 92,172 7.0% 103,762

Equity Value Per Share 5.0% $28.03 $25.78 $23.91 $22.31 $20.94 5.5% $30.40 $27.71 $25.50 $23.64 $22.07 6.0% $33.34 $30.05 $27.40 $25.21 $23.39 6.5% $37.09 $32.95 $29.70 $27.09 $24.94 7.0% $42.03 $36.65 $32.57 $29.37 $26.79

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