$100B Valuation: Can Facebook Support It … and How?
Jed Williams, William Redpath, 4/23/2012
The purpose of this Advisory is twofold. First, based on Facebook’s short historical financial performance, we make projections to consider the plausibility of a $100 billion valuation for its equity using a discounted cash flow model. Second, we analyze the many possible ways Facebook may attempt to reach the revenue targets the model presents.
After modeling the financial factors, we find that the $100 billion value suggested by many is plausible given the history of Facebook to date. What will be necessary for Facebook to justify that valuation to its investors is continued strong expansion of its revenues, necessitating expansion into areas outside online display advertising sales.
Additional revenues can come from harvesting its core advertising product and emerging payments system, but the growth charge levied by the valuation requires Facebook to migrate into entirely new domains. Conceivably, these could include developer contracts, content, mobile software and hardware, and more expansive payments initiatives. We evaluate the likelihood of Facebook extending its brand into each of the aforementioned business realms, and the prospects of it succeeding.
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