Facebook

How Does Facebook Make Money

Advertising
Payments
2009

2010

2011

Advertising

98%

95%

85%

Revenues:-

$m

$m

$m

p3

Advertising
Payments

761
13

1,875
106

3,154
557

p10

Total

777

1,974

3,711

p2

Why IPO?
Name of Beneficial Owner

Executive Officers and Directors:

Mark Zuckerberg, Chairman and CEO
Shares subject to voting proxy
Total
Sheryl K. Sandberg, COO
David A. Ebersman, CFO
Mike Schroepfer, VP - Engineering
Theodore W. Ullyot, VP - Counsel
Marc L. Andreessen, Director
James W. Breyer, Director
Peter A. Thiel, Director
Other Stockholders:
Accel Partners
DST Global Limited
Dustin Moskovitz
Goldman Sachs
T. Rowe Price Associates, Inc.
Elevation Partners
Greylock Partners
Mail.ru Group Limited
Mark Pincus
Meritech Capital Partners
Microsoft Corporation
Reid Hoffman
Sean Parker
Tiger Global Management
Valiant Capital Opportunities, LLC
All other selling stockholders

Signs of
senior
directors
leaving?

Class A
Shares
Owned

Class B
Shares
Owned

Class A
Shares
Owned

Class B
Shares
Owned

% Voting
Power
Post-IPO

Shares
Sold In
IPO

0
42,395,203
42,395,203

533,801,850
541,994,071
1,075,795,921

5,166,794
5,166,794

503,601,850
430,293,407
933,895,257

31.0
27.5
57.5

30,200,000
95,795,713
125,995,713

144,418,008
18,581,901

1,899,986
2,399,999
2,291,849
2,025,244
6,607,131
7,929,092
9,297,884

<1.0
<1.0
<1.0
<1.0
<1.0
1.4
<1.0

0
0
0
0
0
49,031,249
16,844,315

7,929,092
80,600,514
133,698,645

1.4
5.2
8.5
<1.0
<1.0
2.3
1.9
2.3
<1.0
2.1
1.7
<1.0
4.4
1.9
2.3
<1.0

49,031,249
45,662,565
0
28,672,712
0
4,622,496
7,607,352
19,600,699
1,009,283
6,998,780
6,556,925
942,784
0
23,407,820
0
76,635

1,899,986
2,399,999
2,291,849
2,025,244
6,607,131
201,378,349
44,724,100

36,711,928
65,947,241
6,033,630

1,325,775

4,207,500

201,378,349
94,567,945
133,698,645
12,158,743
40,109,645
36,656,372
55,026,235
5,313,920
40,355,223
32,784,626
4,713,920
69,653,657
49,630,486
36,335,590
352,522

144,418,008
5,016,794
37,274,529
6,033,630

12,158,743
35,487,149
29,049,020
36,751,311
4,304,637
33,356,443
26,227,701
3,771,136
69,653,657
30,430,166
36,335,590
275,887

24%
38%
24%
48%

12%
21%
36%
19%
17%
20%
20%
47%
22%

Strong IPO Market

Crash of
2008-9

Recent IPOs

Company
LinkedIn
Groupon
Zynga

Ticker
LNKD
GRPN
ZYNG

IPO date
Price Range
19-May-11 $32 to $35; $42 to $45
03-Nov-11
$16 to $18
16-Dec-11
$8.50 to $10

IPO price
$ 45.00
$ 20.00
$ 10.00

Gross
Proceeds
$352.8 million
$621 million
$1 billion

1st Day
Total
1st Week 1st Month
Return Total Return Total Return
109.4%
91.9%
45.6%
43.0%
21.3%
-5.3%
-5.0%
-6.1%
-11.3%

Large IPOs significant for fund managers technology

benchmarks

Recommendation ?

Valuation
Relative multiples
Fundamental cash flows

Valuation

New IPOs quite expensive

Linkedin looks expensive
Groupon looks better value
FB looks expensive when looking at earnings growth

Critique of DCF Forecast

Forecast predicts rising ROE

RoE higher than near peer Google..

Google Post IPO

Years post IPO:-

2005

2006

2007

2008

2009

2010

2011

2012

2013

Revenues

6,139

10,605

16,594

21,796

23,651

29,321

37,905

46,039

55,519

EBIT

2,017

3,550

5,084

6,632

8,312

10,381

11,742

12,760

13,966

Net income

1,465

3,077

4,204

4,227

6,520

8,505

9,737

10,737

12,920

S Equity

9,419

17,040

22,690

28,239

36,004

46,241

58,145

71,715

87,309

73%

56%

31%

9%

24%

29%

21%

21%

GOOGLE

Rev gwth
EBIT margin

32.9%

33.5%

30.6%

30.4%

35.1%

35.4%

31.0%

27.7%

25.2%

Net margin

23.9%

29.0%

25.3%

19.4%

27.6%

29.0%

25.7%

23.3%

23.3%

RoE

15.6%

18.1%

18.5%

15.0%

18.1%

18.4%

16.7%

15.0%

14.8%

21.2%

19.9%

0.4%

29.5%

19.4%

10.3%

7.4%

14.0%

d NI / d SE

Achieves a very much lower ROE that that forecast for Facebook