VALUATION OF FACEBOOK, BASED ON PROF.

ASWATH DAMODARAN
2011 2012E 2013E 2014E 2015E
DCF Base year 1 2 3 4
Assumptions:
Revenue growth rate 40.0% 40.0% 40.0% 40.0%
EBIT (Operating) margin 45.7% 44.6% 43.5% 42.5% 41.4%
Tax rate 40.0% 40.0% 40.0% 40.0% 40.0%
Increase in CAPEX + WC as % of sales 67% 67% 67% 67%
Cost of capital 11.1% 11.1% 11.1% 11.1%
67% 67% 67% 67%
Free cash flow to firm ($ millions):
Revenues 3,711 5,195 7,274 10,183 14,256
EBIT 1,695 2,318 3,167 4,325 5,903
EBIT(1-tax) 1,017 1,391 1,900 2,595 3,542
Increase in CAPEX + WC 995 1,392 1,949 2,729
FCFF 396 508 646 813
Terminal value

Present value:
Cumulative discount factor 0.9004 0.8107 0.7300 0.6573
PV of FCFF and TV 357 412 471 534

Value of firm 72,122.8

- Debt 1,587.0
+ Excess Cash 2,000.0
Value of equity 72,535.8
- Cost of equity options (after tax) 3,088.5 WACC Equity
Value of common equity 69,447.4 Market values $74,407.8
Pre-IPO number of shares (millions) 1,958.1 Weights in WACC 97.9%
Estimated value /share $ 35.47 Cost of Component 11.2%
Price talk $ 38.00
Price as % of value 107%

Assumtions ( in $ millions) This year

Revenues $ 3,711.0
Operating income or EBIT $ 1,695.0
Book value of equity $ 5,228.0
Book value of debt $ 1,587.0
Excess Cash $ 2,000.0
Pre-IPO number of shares (millions) 1,958.1
Current stock price $ 38.00
Effective tax rate (last 3 years) 40.00%
Marginal tax rate 35.00%

The value drivers below:

Compounded annual revenue
growth rate over next 5 years 40.00%
Target pre-tax operating margin
(EBIT as % of sales in year 10) 35.00%
Sales to capital ratio (for
computing reinvestment) 1.50

Market numbers
Riskfree rate 2.0%
Initial cost of capital 11.1%
Cost of capital after year 10 8.0%

Estimation of Current Cost of Capital

Equity
Pre-IPO Shares outstanding 1958.1
Current Market Price per share $ 38.00

Industry avg unlevered beta 1.52

Riskfree Rate 2.0%
Equity Risk Premium 6.00%
Levered Beta for equity 1.54

Debt
Pre-tax Cost of Debt 3.65%
Marginal tax rate 35%

Preferred Stock
Number of Preferred Shares 0
Current Market Price per Share 70
Annual Dividend per Share 5
 2016E 2017E 2018E 2019E 2020E 2021E Terminal
5 6 7 8 9 10 year

40.0% 32.4% 24.8% 17.2% 9.6% 2.0% 2.0%

40.3% 39.3% 38.2% 37.1% 36.1% 35.0% 35.0%
40.0% 39.0% 38.0% 37.0% 36.0% 35.0% 35.0%
67% 67% 67% 67% 67% 67% 100%
11.1% 10.4% 9.8% 9.2% 8.6% 8.0% 8.0%
67% 67% 67% 67% 67% 67% 100%

19,959 26,425 32,979 38,651 42,362 43,209 44,073

8,051 10,377 12,599 14,353 15,279 15,123 15,426
4,830 6,330 7,811 9,042 9,778 9,830 10,027
3,821 4,333 4,391 3,800 2,486 568 864
1,010 1,997 3,420 5,242 7,292 9,262 9,162
152,707

0.5918 0.5358 0.4878 0.4466 0.4112 0.3808 0.3808

598 1,070 1,669 2,341 2,999 3,527 58,146

Debt Preferred Capital

$ 1,587.0 $ - $75,994.8
2.1% 0.0% 100.0%
2.4% 7.1% 11.1%
Exhibit 12

Market Comparables — Multiples

EV/Sales Price/Earnings

Firm Ticker Share Price 2013E 2014E 2013E 2014E

Amazon AMZN $ 224.39 1.3x 0.9x 177.7x 109.5x
Apple AAPL $ 553.17 2.5x 1.8x 12.8x 11.1x
Cisco Systems CSCO $ 16.54 1.6x 1.4x 9.0x 8.5x
Google GOOG $ 611.11 4.7x 3.6x 14.5x 12.4x
Groupon GRPN $ 12.17 4.2x 2.9x 69.2x 17.9x
LinkedIn LNKD $ 110.56 10.7x 7.3x 173.4x 96.6x
Microsoft MSFT $ 30.21 2.8x 2.5x 11.2x 10.0x
Yahoo! YHOO $ 15.40 2.8x 2.6x 17.1x 15.0x
Zynga ZNGA $ 8.56 5.9x 4.9x 33.4x 25.1x

Mean 4.1x 3.1x 57.6x 34.0x

Median 2.8x 2.6x 17.1x 15.0x

Facebook FB $ 34.00 10.1x 7.2x 51.5x 39.1x

$ 38.00 11.2x 8.0x 57.6x 43.7x

Facebook assumptions 2013E 2014E

EPS consensus forecast $0.66 $0.87
Sales forecast mn (Ex. 11) 7,274 10,183
Net Debt mn (Ex. 11) (413.0) (413.0)
Pre-money shares (mn) 1,958.1 1,958.1
 Price/Sales

2013E 2014E
1.6x 1.3x
3.3x 2.8x
1.9x 1.8x
5.4x 4.6x
3.4x 2.6x
12.7x 8.6x
3.4x 3.2x
4.1x 4.0x
4.5x 3.7x

4.5x 3.6x
3.4x 3.2x

10.0x 7.1x
11.2x 8.0x
Revenue Growth Rate 40%
EBIT Margin 35%
Value per share 35.47
WACC 11.10%
Perpetual Growth 2%

Revenue Growth Rate

35.47 20% 25% 30% 35% 40% 45% 50%
27%
29%
31%
33%
EBIT
Margin 35%
37%
39%
40%
41%

WACC
35.47 7.1% 8.1% 9.1% 10.1% 11.1% 12.1% 13.1%
1.0%
1.2%
1.4%
1.6%
Perpetual 1.8%
Growth 2.0%
Rate 2.2%
2.4%
2.6%
2.8%
3.0%
 55% 60%

14.1% 15.1%
Particulars 2011 2012 2013 2014 2015
Revenue Growth Rate 60% 55% 50% 40%
Revenue 3,711 5,938 9,203 13,805 19,327
Change in Sales 2,227 3,266 4,602 5,522
Costs and Expenses:
Costs of revenue 860 1,376 2,133 3,199 4,479
Marketing and Sales 427 683 1,059 1,588 2,224
Research and Development 388 621 962 1,443 2,021
General and Administrative 280 448 694 1,042 1,458
Total costs and expenses 1,955 3,128 4,848 7,273 10,182
Income from Operations 1,756 2,810 4,355 6,532 9,145
Less: Taxes 702 1,124 1,742 2,613 3,658
40% 40% 40% 40% 40%
NOPAT 1,054 1,686 2,613 3,919 5,487
Less: Increase in Capex and NWC 1,492 2,188 3,083 3,700
(% of change in sales) 67% 67% 67% 67%
Free Cash Flows 194 425 836 1,787
Terminal Value
Total Free Cash Flows 194 425 836 1,787
PV of Cash Flows 79,865

Terminal Growth Rate 2%

WACC 11.1%
Industry avg. unlevered beta 1.52
Risk-free rate 2%
Equity risk premium 6%
Unlevered cost of capital 11.12%
 2016 2017 2018 2019 2020 2021
40% 25% 15% 15% 10% 5%
27,058 33,822 38,895 44,730 49,203 51,663
7,731 6,764 5,073 5,834 4,473 2,460

6,270 7,838 9,014 10,366 11,402 11,973

3,113 3,892 4,475 5,147 5,661 5,944
2,829 3,536 4,067 4,677 5,144 5,402
2,042 2,552 2,935 3,375 3,712 3,898
14,254 17,818 20,491 23,564 25,921 27,217
12,803 16,004 18,405 21,166 23,282 24,446
5,121 6,242 6,994 7,831 8,382 8,556
40% 39% 38% 37% 36% 35%
7,682 9,763 11,411 13,334 14,901 15,890
5,180 4,532 3,399 3,909 2,997 1,648
67% 67% 67% 67% 67% 67%
2,502 5,230 8,012 9,425 11,904 14,242
160,318
2,502 5,230 8,012 9,425 11,904 174,559
Market Multiple (Comparable Companies)

EV/Sales Price/Earnings
Share
Firm Price 2013E 2014E 2013E 2014E
Amazon $ 224.39 1.3x 0.9x 177.7x 109.5x
Google $ 611.11 4.7x 3.6x 14.5x 12.4x
LinkedIn $ 110.56 10.7x 7.3x 173.4x 96.6x
Yahoo! $ 15.40 2.8x 2.6x 17.1x 15.0x
Zynga $ 8.56 5.9x 4.9x 33.4x 25.1x
Average 5.1x 3.9x 83.2x 51.7x
Chosen because of similar industry
Facebook Estimates

EV/Sales Price/Earnings

Particulars 2013E 2014E 2013E 2014E

EPS consensus forecast $0.66 $0.87 $0.66 $0.87
Sales forecast mn (Ex. 11) 7,274 10,183 7,274 10,183
Net Debt mn (Ex. 11) (413.0) (413.0) (413.0) (413.0)
Pre-money shares (mn) 1,958.1 1,958.1 1,958.1 1,958.1
Average market multiple 5.1x 3.9x 83.2x 51.7x
Enterprise Value 36,998 39,400 107,130 87,672

Unlevered Cost of Capital 11.12% 11.12%

EV in 2011 58,679 150,659
EV per share $29.97 $76.94