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Facebook

Nasdaq:FB
Snowflake Description

Exceptional growth potential with flawless balance sheet.

The Snowflake is generated from 30 checks in 5 different areas, read more below.
FB
Nasdaq
$422B
Market Cap
Internet Software and Services
Company description

Facebook, Inc. provides various products to connect and share through mobile devices, personal computers, and other surfaces worldwide. More info.


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3 Month History
FB
Industry
5yr Volatility vs Market

Value

 Is Facebook undervalued based on future cash flows and its price relative to the stock market?

Value is all about what a company is worth versus what price it is available for. If you went into a grocery store and all the bananas were on sale at half price, they could be considered undervalued.
INTRINSIC VALUE BASED ON FUTURE CASH FLOWS
Here we compare the current share price of Facebook to its discounted cash flow value.

The discounted cash flow value is simply looking at what the company is worth today, based on estimates of how much money it is expected to make in the future.

How is this discounted cash flow calculated?

  • The current share price of Facebook is above its future cash flow value.
Often investors are willing to pay a premium for a company that has a high dividend or the potential for future growth.
PRICE RELATIVE TO MARKET
We can also value a company based on what the stock market is willing to pay for it. This is similar to the price of fruit (e.g. Mangoes or Avacados) increasing when they are out of season, or how much your home is worth.

The amount the stock market is willing to pay for Facebook's earnings, growth and assets is considered below, and whether this is a fair price.
Price based on past earnings
Are Facebook's earnings available for a low price, and how does this compare to other companies in the same industry?
  • Overvalued based on earnings compared to the Software industry average.
  • Overvalued based on earnings compared to the overall market.
Price based on expected Growth
Does Facebook's expected growth come at a high price?
  • Poor value based on expected growth next year.
Price based on value of assets
What value do investors place on Facebook's assets?
  • Overvalued based on assets compared to the Software industry average.
X
Value checks
We assess Facebook's value by looking at:
  1. Is the discounted cash flow value less than 20%, or 40% of the share price? (2 checks) (Click here or on bar chart for details of DCF calculation.)
  2. Is the PE ratio less than the market average, and/ or less than the Software industry average (and greater than 0)? (2 checks)
  3. Is the PEG ratio within a reasonable range (0 to 1)? (1 check)
  4. Is the PB ratio less than the Software industry average (and greater than 0)? (1 check)
  5. Facebook has a total score of 0/6, see the detailed checks below.

    Note: We use GAAP Earnings per Share in all our calculations including PE and PEG Ratio.
    Note 2: PEG ratio is based on analysts EPS growth expectations in 1 year (24.88%).

    Full details on the Value part of the Simply Wall St company analysis model.
X
Discounted cash flow (Free cash flow to Equity)

The calculations below outline how an intrinsic value for Facebook is arrived at by discounting future cash flows to their present value. We use analyst's estimates of cash flows going forward 5 years.

See our documentation to learn about this calculation.

5 year cash flow forecast

Present value of next 5 years cash flows:
$73,708

Terminal Value

Terminal Value = FCF2021 × (1 + g) ÷ (Discount Rate – g)

Terminal Value = $29,181 × (1 + 2.5%) ÷ (10.56% – 2.5%)

Terminal value based on the Perpetuity Method where growth (g) = 2.5%:
$369,638

Present value of terminal value:
$223,768

Equity Value

Equity Value (Total value) = Present value of next 5 years cash flows + terminal value

Value = Total value / Shares Outstanding ($297,476 / 2,897)

Value per share:
$102.67

Current discount (share price of $145.47): -42%



Estimate of Discount Rate

The discount rate, or required rate of return, is estimated by calculating the Cost of Equity.

Discount rate = Cost of Equity = Risk Free Rate + (Levered Beta * Equity Risk Premium)

Discount rate = 10.56% = 2.47% + (1.074 * 7.53%)



Estimate of Bottom Up Beta

The Levered Beta is the Unlevered Beta adjusted for financial leverage. It is limited to 0.8 to 2.0 (practical range for a stable firm).

Levered Beta = Unlevered beta (1 + (1- tax rate) (Debt/Equity))

1.074 = 1.074 (1 + (1- 30%) (0%))

Levered Beta used in calculation = 1.074



Assumptions
  1. The risk free rate of 2.47% is from the 10 year government bond rate in US.
  2. The bottom-up beta is estimated by analysing other companies in the same industry.
  3. The Equity Risk Premium is calculated by subtracting the risk free rate from the market return premium (10%) (source: Buffet).
  4. The dividend discount model is automatically used for companies in the following industries: Banks, Insurance, Real Estate Investment Trusts (REITs), Diversified Financial Services and Capital Markets.

Future Performance

 How is Facebook expected to perform in the next 1 to 3 years based on estimates from 41 analysts?

    The future performance of a company is measured in the same way as past performance, by looking at estimated growth and how much profit it is expected to make.

    Future estimates come from professional analysts. Just like forecasting the weather, they don’t always get it right!
    3 year growth
    106%
    Expected earnings growth over 3 years.
    Future Earnings growth analysis
    Is Facebook expected to grow at an attractive rate? We look at the 1 year and 3 year growth below.

    Are Facebook's annual earnings growth expected to exceed 3.6% over the next 3 years?

    • After 1 year
    • After 3 years
    1 & 3 year estimated growth in earnings
    Past and Future Earnings per Share
    The accuracy of the analysts who estimate the future performance data can be gauged below. We look back 3 years and see if they were any good at predicting what actually occured. We also show the highest and lowest estimates looking forward to see if there is a wide range.
    Analysts growth expectations
    2 year growth check
    Super high growth metrics x1.5?

    Which of the these is expected to increase by over 50% in 2 year's time?

    • Revenue
    • Cash flow
    • Profit
    Performance in 3 years
    In the same way as past performance we look at the future estimated return (profit) compared to the available funds. We do this looking forward 3 years.
    • Facebook is expected to perform strongly, Return on Equity (ROE) in 3 years is estimated to be above 20%.

    Improvement & Relative to industry
    • Expected to be less than the Software industry average.
    • An improvement in Facebook's performance (ROE) is expected over the next 3 years.
    X
    Future performance checks
    We assess Facebook's future performance by looking at:
    1. Is the growth in earnings expected to beat the low risk savings rate, plus a premium to keep pace with inflation, in 1 year and 3 years? (2 checks)
    2. Does the average analyst expect Revenue to increase by 50% or more in 2 years? (1 check)
    3. Does the average analyst expect Operating Cash Flow to increase by 50% or more in 2 years? (1 check)
    4. Does the average analyst expect Net Income (Profit) to increase by 50% or more in 2 years? (1 check)
    5. Is the Return on Equity in 3 years expected to be over 20%? (1 check)
    Some of the above checks will fail if the company is expected to be loss making in the relevant year.
    Facebook has a total score of 6/6, see the detailed checks below.

    Note: If no +3 year data is available, +2.5 year data may be used.

    Note 2: We use GAAP per Share in all our calculations.

    Full details on the Future part of the Simply Wall St company analysis model.

    Past Performance

     How has Facebook performed over the past 5 years?

    The past performance of a company can be measured by how much growth it has experienced and how much profit it makes relative to the funds and assets it has available.
    Past earnings growth
    Below we compare Facebook's growth in the last year to its industry (Software).
    Past Earnings growth analysis
    We also check if the company has grown in the past 5 years, and whether it has maintained that growth in the year.
    • Facebook's earnings growth has exceeded the industry average over the past year.
    • Facebook's 1 year earnings growth exceeds its 5 year annual average (171.9% vs 44.3%).
    • Facebook has delivered strong earnings growth in the past 5 years.
    Profit History
    Facebook's revenue and profit over the past 5 years is shown below, any years where they have experienced a loss will show up in red.
    Performance last year
    We want to ensure a company is making the most of what it has available. This is done by comparing the return (profit) to a company's available funds, assets and capital.
    • Poor return on shareholders funds (ROE) last year.
    • Facebook performed above the Software industry average based on return on assets (ROA) last year.
    • Performance based on revenue producing assets (ROCE) has improved significantly over 3 years.
    X
    Past performance checks
    We assess Facebook's performance over the past 5 years by checking for:
    1. Has earnings per share (EPS) increased in past 5 years? (1 check)
    2. Has the EPS growth in the last year exceeded that of the Software industry? (1 check)
    3. Is the current EPS growth higher than the average annual growth over the past 5 years? (1 check)
    4. Is the Return on Equity (ROE) higher than 20%? (1 check)
    5. Is the Return on Assets (ROA) above industry average? (1 check)
    6. Has the Return on Capital Employed (ROCE) increased from 3 years ago? (1 check)
    The above checks will fail if the company has reported a loss in the most recent earnings report. Some checks require at least 3 or 5 years worth of data.
    Facebook has a total score of 5/6, see the detailed checks below.

    Note: We use GAAP Earnings per Share in all our calculations.

    Full details on the Past part of the Simply Wall St company analysis model.

    Health

     How is Facebook's financial health and their level of debt?

    A company's financial position is much like your own financial position, it includes everything you own (assets) and owe (liabilities).

    The boxes below represent the relative size of what makes up Facebook's finances.

    The net worth of a company is the difference between its assets and liabilities.
    Net Worth
    • Facebook is able to meet its short term (1 year) commitments with its holdings of cash and other short term assets.
    • Facebook's cash and other short term assets cover its long term commitments.
    Balance sheet
    This treemap shows a more detailed breakdown of Facebook's finances. If any of them are yellow this indicates they may be out of proportion and red means they relate to one of the checks below.
    Assets
    Liabilities and shares
    The 'shares' portion represents any funds contributed by the owners (shareholders) and any profits.
    • Low level of unsold assets
    • Company has no debt.
    Historical Debt
    Nearly all companies have debt. Debt in itself isn’t bad, however if the debt is too high, or the company can’t afford to pay the interest on its debts this may have impacts in the future.

    The graphic below shows equity (available funds) and debt, we ideally want to see the red area (debt) decreasing.

    If there is any debt we look at the companies capability to repay it, and whether the level has increased over the past 5 years.
    • Facebook has no debt.
    X
    Financial health checks
    We assess Facebook's financial health by checking for:
    1. Are short term assets greater than short term liabilities? (1 check)
    2. Are short term assets greater than long term liabilities? (1 check)
    3. Has the debt to equity ratio increased in the past 5 years? (1 check)
    4. Is the debt to equity ratio over 40%? (1 check)
    5. Is the debt covered by short term assets? (1 check)
    6. Are earnings greater than 5x the interest on debt (if comapany pays interest at all)? (1 check)
    7. Facebook has a total score of 6/6, see the detailed checks below.


    Full details on the Health part of the Simply Wall St company analysis model.

    Dividends

     What is Facebook's current dividend yield, its reliability and sustainability?

    Dividends are regular cash payments to you from the company, similar to a bank paying you interest on a savings account.
    Annual Dividend Income
    Dividend payments
    0%
    Current annual income from Facebook dividends.
    If you bought $2,000 of Facebook shares you are expected to receive $0 in your first year as a dividend.
    Dividend Amount
    Here we look how much dividend is being paid, if any. Is it above what you can get in a savings account? It is up there with the best dividend paying companies?
    • Paying below low risk savings rate. (1.75%)
    • Paying below the markets top dividend payers. (3.18%)
    Historical dividend yield
    It is important to see if the dividend for a company is stable, and not wildly increasing/decreasing each year. This graph shows you the historical rate to count toward your assessment of the stock.

    We also check to see if the dividend has increased in the past 10 years.
    • Not paying a notable dividend.
    • Not paying a notable dividend.
    Current Payout to shareholders
    What portion of Facebook's earnings are paid to the shareholders as a dividend.
    • Not paying a notable dividend.
    Future Payout to shareholders
    • Insufficient estimate data to determine if a dividend will be paid in 3 years.
    X
    Income/ dividend checks
    We assess Facebook's dividend by checking for:
    1. Firstly is the company paying a notable dividend (greater than 0.5%) - if not then the rest of the checks are ignored.
    2. Current dividend yield, is there one at all, is it higher than the low risk savings rate, and is it above the top 25% of dividend payers? (2 checks)
    3. Have they paid a dividend for 10 years, and during this period has the dividend been volatile (drop of more than 25%)? (1 check)
    4. If they have paid a dividend for 10 years has it increased in this time? (1 check)
    5. How sustainable is the dividend, can Facebook afford to pay it from its earnings today and in 3 years (Payout ratio less than 90%)? (2 checks)
    6. Facebook has a total score of 0/6, see the detailed checks below.


    Full details on the Dividends part of the Simply Wall St company analysis model.

    Management

     What is the CEO of Facebook's salary, the management and board of directors tenure and is there insider trading?

    Management is one of the most important areas of a company. We look at unreasonable CEO compensation, how long the team and board of directors have been around for and insider trading.
    CEO
    Mark Zuckerberg, image provided by Google.
    Mark Zuckerberg
    COMPENSATION$5,765,832
    AGE33
    CEO Bio

    Mr. Mark Zuckerberg founded Facebook, Inc. in 2004 and has been its Chief Executive Officer since July 2004 and Chairman since January 2012. Mr. Zuckerberg is responsible for setting the overall direction and product strategy of Facebook. He leads the design of Facebook's service and development of its core technology and infrastructure. Mr. Zuckerberg is also a Co-Founder of Breakthrough Energy Coalition, which he co-founded in November 2015. He has been an Independent Director of Facebook, Inc. since July 2004. He attended Harvard University.

    CEO Compensation
    • CEO's compensation has been consistent with company performance over the past year.
    • CEO's compensation appears reasonable.
    Management Team Tenure

    Average tenure of the Facebook management team:

    Management tenure
    4.8 years
    • The tenure for the Facebook management team is about average.
    Management Team

    Mark Zuckerberg

    TITLE
    Founder
    COMPENSATION
    $5,765,832
    AGE
    33

    Dave Wehner

    TITLE
    Chief Financial Officer
    COMPENSATION
    $16,544,275
    AGE
    48

    Sheryl Sandberg

    TITLE
    Chief Operating Officer and Director
    COMPENSATION
    $24,549,457
    AGE
    47

    Mike Schroepfer

    TITLE
    Chief Technology Officer
    COMPENSATION
    $16,459,175
    AGE
    42

    Chris Cox

    TITLE
    Chief Product Officer
    COMPENSATION
    $16,533,189
    AGE
    34

    Susan Taylor

    TITLE
    Chief Accounting Officer
    AGE
    48
    Board of Directors Tenure

    Average tenure of the Facebook board of directors:

    Board tenure
    7.8 years
    • The tenure for the Facebook board of directors is about average.
    Board of Directors

    Mark Zuckerberg

    TITLE
    Founder
    COMPENSATION
    $5,765,832
    AGE
    33

    Sheryl Sandberg

    TITLE
    Chief Operating Officer and Director
    COMPENSATION
    $24,549,457
    AGE
    47

    Reed Hastings

    TITLE
    Independent Director
    COMPENSATION
    $346,006
    AGE
    56

    Erskine Bowles

    TITLE
    Independent Director
    COMPENSATION
    $416,006
    AGE
    72

    Sue Desmond-Hellmann

    TITLE
    Lead Independent Director
    COMPENSATION
    $386,006
    AGE
    60

    Peter Thiel

    TITLE
    Independent Director
    COMPENSATION
    $346,006
    AGE
    50
    Recent Insider Trading
    Who owns this company?
    X
    Management checks
    We assess Facebook's management by checking for:
    1. Is the CEO's compensation unreasonable compared to market cap and profit (greater than 0.5% of the company's profit + 0.03% of market cap)? (1 check)
    2. Has the CEO's compensation increased more than 20% whilst the EPS is down more then 20%? (1 check)
    3. Is the average tenure of the management team less than 2 years? (1 check)
    4. Is the average tenure of the board of directors team less than 3 years? (1 check)
    5. Facebook has a total score of 6/6, this is not included on the snowflake, see the detailed checks below.


    Note: We use the top 6 management executives and board members in our calculations.

    Note 2: Insider trading include any internal stakeholders and these transactions.

    Full details on the Management part of the Simply Wall St company analysis model.

    Company News

    Articles
    Announcements

    Company Info

    Description

    Facebook, Inc. provides various products to connect and share through mobile devices, personal computers, and other surfaces worldwide. Its solutions include Facebook Website and mobile application that enables people to connect, share, discover, and communicate each other on mobile devices and personal computers; Instagram, a mobile application that enables people to take photos or videos, customize them with filter effects, and share them with friends and followers in a photo feed or send them directly to friends; Messenger, a messaging application to communicate with people and businesses across platforms and devices; and WhatsApp Messenger, a mobile messaging application. The company also offers Oculus virtual reality technology and content platform, which allow people to enter an immersive and interactive environment to play games, consume content, and connect with others. As of December 31, 2016, it had approximately 1.23 billion daily active users. Facebook, Inc. was founded in 2004 and is headquartered in Menlo Park, California.

    Details
    Name:Facebook, Inc.
    Ticker:FB
    Exchange:NasdaqGS
    Founded:2004
    Market Cap:$421,480 million
    Website:http://www.facebook.com
    Listings
    Map

    1601 Willow Road, Menlo Park, 94025, United States

    Number of employees
    Street

    Current staff
    Staff numbers
    17,048
    Facebook employees.
    Industry
    Industry:Internet Software and Services
    Sector:Software and Services