Valuation of Facebook Inc. 25 July 2013: $30.54

Jeppe Kirk Bonde

Student thesis: Master thesis


This paper answers the research question: “What is the fundamental value of one share of Facebook Inc. as of 25 July 2013?” and finds it to be $30.54. To answer the research question, the paper follows a structure laid out through sub-questions: - What are Facebook’s [FB] sustainable competitive advantages? - How are factors, at micro and macro level expected to impact FB’s performance going forward? - How is FB expected to perform in the future? Strategic analyses of FB’s resources and capabilities are performed, finding that it is in lock-in and ability to imitate that FB has sources of sustainable competitive advantages. FB’s eco-system is analyzed with a focus on other social networks, advertisers, and users. A framework for understanding social networks is developed; distinguishing networks on content ranking mechanism, network type, and device focus. The paper also provides an analysis of the advertising eco-system with a criticism of current pricing models. Macro factors are analyzed using the PEST framework, and FB is found to be robust towards often-considered risks, such as privacy concerns and global shift towards smaller screens. Based in the strategic analyses, the most significant markets for FB, going forward, are analyzed, for growth and potential market share. Following strategic analyses, the financial statements of FB are analyzed and reformulated to distinguish operating from financing activities; to create a basis for forecasting future performance. Adjustments are made, including IPO expenses, and Research and Developments costs through acquisitions. Based in the forecast for future performance, an adjusted present value model is used to estimate the share value. The result is tested with comparative multiples against other social networks and internet firms. Lastly, a best case scenario is estimated, and sensibility analyses made, to put the share value in context.

EducationsMSc in Finance and Strategic Management, (Graduate Programme) Final Thesis
Publication date2013
Number of pages91