Facebook (FB) is an American online social media and social networking service based in Menlo Park, California. Facebook’s web-based tools allow users to connect and communicate with each other across the world. Facebook had about 2.70 billion monthly active users on June 30, 2020. The company generates substantially all revenue from selling advertising placements to marketers. This week, I review Facebook’s Operating Segments, Key Ratios, derive the Intrinsic Value, and find the expected rate of return. Since this is a long video, please feel free to use the time stamps in the video if you only wish to watch certain topics.
I review various key ratios such as Revenue, Net Income, Shares outstanding, Book Value, Dividends, Payout Ratio, Free Cash Flows (FCF), Interest Coverage, Financial Leverage, Current Ratio, Quick Ratio, Debt to Equity Ratio, Return on Equity (ROE), Days Sales Outstanding, Days Inventory, Payables Period, Inventory Turnover, etc. I also compare FB’s current valuations to that of S&P 500.
After taking into account 2020’s free cash flow of $23,632 million figure, an 11% growth rate of FCF (growth for the next 10 years), 10% discount rate, 3% long term growth rate (growth from 10 year mark to perpetuity), 2,888 million shares outstanding, and $0 of long term debt, the DCF analysis yields us an intrinsic value of $219 per share. Using the current stock price of about $258 per share, and taking into the shares outstanding and future projects of free cash flows, we get the expected rate of return of 3.1% if we hold this stock through 2045.
Timestamp
0:00 Introduction
0:28 Business Products
2:09 Key Ratios Analysis
12:05 Discounted Cash Flow Analysis / Intrinsic Value
13:43 Expected Rate of Return Calculation
14:47 Summary / Conclusion
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References:
Facebook’s Website: here
Morningstar Key Ratios Link: here.
Useful Resources here.
Company overview: Facebook, Inc. is an American technology conglomerate based in Menlo Park, California. Facebook builds technologies that give people the power to connect with friends and family, find communities and grow businesses.
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