Statement Information: 1. Stock valuation - A comparison of estimated values and

Question

Statement Information:

1. Stock valuation - A comparison of estimated values and market prices Slim Perkins, a business journalist, is a recent hire at his firm. Since he joined the firm, he has been following Facebook Inc. 's (FB) initial public offering (IPO) and the stock's performance. His task is to estimate Facebook's fair market value, also referred to as "intrinsic" value, and compare this value with the current stock price, and recommend a buy, sell, or hold rating to investors. Slim pulls the company's consolidated financial statements to collect relevant data on the company's historical financial performance 421,233,615 Shares FACEBOOK CLASS A COMMON STOCK Statement of Statement of Cash Flows Balance Sheet He notices that the company assumes a 45% marginal tax rate after the IPO, and mentions that the company projects that user rates and revenue growth will decline over time Income Statement Stockholder's Equity View each tab to access the relevant financial information needed to solve the following questions All values are given in millions of dollars Slim starts his evaluation by calculating ratios of costs and expenses to revenues, interest expense to revenues, and others that will form the set of assumptions in his analysis which will be used to calculate free cash flows

Explanation / Answer

The value of long-term liabilities that FB reported in 2011 was $398 million, and the value of preferred stock in 2011 was $615 million. thus, using the firm value, the derived equity value will be $3,039.6 million. the company issued 388 million shares of class A common stock in 2012. Value of each stock is 7.8.

Note: the firm value will actually be based on total shares outstanding and not just issued, in the given question I have taken into account the issued shares to calculate implied share price.

Rating = sell, based on DCF analysis with the given assumptions.

2011 2010 2009 Average Revenue 3711 1974 777 Cost and expenses 1955 942 515 % 53% 48% 66% 56% Operating current assets 696 461 Growth 51% 51% Operating current liabilities 620 283 Growth 119% 119% D&A 323 139 78 % of revenues 9% 7% 10% 9% Net fixed assets 1475 547 148 % of revenues 40% 28% 19% 29% 1 2 3 4 5 6 7 8 2011 2012 2013 2014 2015 2016 2017 2018 TV Revenue 3,711 4,379 5,167 6,097 7,195 8,490 8,914 9,360 9,828 growth 18% 18% 18% 18% 18% 5% 5% 5% Total costs and expenses 1,955 2,433 2,871 3,388 3,997 4,717 4,953 5,201 5,461 % 56% 56% 56% 56% 56% 56% 56% 56% EBIT 1,756 1,946 2,296 2,710 3,197 3,773 3,961 4,160 4,368 Tax rate 45% 45% 45% 45% 45% 45% 45% 45% Tax 876 1,033 1,219 1,439 1,698 1,783 1,872 1,965 NOPAT 1,070 1,263 1,490 1,759 2,075 2,179 2,288 2,402 Operating current assets 696 1,051 1,586 2,395 3,616 5,459 8,243 12,444 18,788 Operating current liabilities 620 936 1,413 2,134 3,221 4,863 7,342 11,085 16,736 NOWC 76 115 173 262 395 596 900 1,359 2,052 Change in NOWC -39 -58 -88 -133 -201 -304 -459 -693 Net fixed assets 1,475 1,263 1,490 1,758 2,075 2,448 2,570 2,699 2,834 Change in NFA 212 -227 -268 -316 -373 -122 -129 -135 D&A 323 376 444 524 618 730 766 804 845 Capital expenditure 589 217 256 302 356 644 676 710 Free cash flow 1,620 1,421 1,658 1,927 2,230 2,519 2,505 2,419 Present value of FCF 1,385 1,038 1,035 1,028 1,017 982 835 Horizon value 14,231 PV of Horizon Value 4052.6 Total firm value 11,373 LT Debt on Balance sheet 398.0 Preferred stock 615.0 Equity value 3039.6 Common shares outstanding in 2012 IPO 388.0 Share price (Intrinsic value) 7.8 Price of IPO 38.0 Premium to intrinsic value 385% Rating Sell WACC calculation Google's WACC 9.50% Premium for Facebook 7.50% Facebook WACC 17.00%

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.