Internet Services Stocks

Facebook Inc Valuation – January 2019 $FB

Company Profile (excerpt from Reuters): Facebook, Inc., incorporated on July 29, 2004, is focused on building products that enable people to connect and share through mobile devices, personal computers and other surfaces. The Company also enables people to discover and learn about what is going on in the world around them, enables people to share their opinions, ideas, photos and videos, and other activities with audiences ranging from their friends to the public, and stay connected by accessing its products. The Company’s products include Facebook, Instagram, Messenger, WhatsApp and Oculus. The Company also engages in selling advertising placements to marketers. Its advertisements let marketers reach people based on a range of factors, including age, gender, location, interests and behaviors. Marketers purchase advertisements that can appear in multiple places, including on Facebook, Instagram, and third-party applications and Websites.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of FB – January 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $431,182,982,185 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 9.00 Pass
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 2059.46% Pass
6. Moderate PEmg Ratio PEmg < 20 31.61 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 5.44 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 9.00 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.00 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $4.75
MG Growth Estimate 15.00%
MG Value $182.77
Opinion Fairly Valued
MG Grade C+
MG Value based on 3% Growth $68.84
MG Value based on 0% Growth $40.35
Market Implied Growth Rate 11.55%
Current Price $150.04
% of Intrinsic Value 82.09%

Facebook, Inc. Common Stock is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability over the last ten years, and the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor is only concerned with the lack of dividends. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $0.61 in 2014 to an estimated $4.75 for 2018. This level of demonstrated earnings growth supports the market’s implied estimate of 11.55% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into Facebook, Inc. Common Stock revealed the company was trading above its Graham Number of $63.93. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 31.61, which was below the industry average of 91.28, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $12.71.

Facebook, Inc. Common Stock receives an average overall rating in the ModernGraham grading system, scoring a C+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $12.71
Graham Number $63.93
PEmg 31.61
Current Ratio 9.00
PB Ratio 5.44
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2018
Total Current Assets $49,147,000,000
Total Current Liabilities $5,462,000,000
Long-Term Debt $0
Total Assets $92,452,000,000
Intangible Assets $19,755,000,000
Total Liabilities $12,110,000,000
Shares Outstanding (Diluted Average) 2,913,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $7.10
Dec2017 $5.39
Dec2016 $3.49
Dec2015 $1.29
Dec2014 $1.10
Dec2013 $0.60
Dec2012 $0.01
Dec2011 $0.46
Dec2010 $0.28

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $4.75
Dec2017 $3.17
Dec2016 $1.81
Dec2015 $0.88
Dec2014 $0.61
Dec2013 $0.33
Dec2012 $0.18
Dec2011 $0.23
Dec2010 $0.09

Recommended Reading:

Other ModernGraham posts about the company

Facebook Inc Valuation – March 2018 $FB
Facebook Inc Valuation – July 2016 $FB
Facebook Inc Valuation – January 2016 Update $FB
Facebook Inc. Analysis – August 2015 Update $FB
Facebook Stock Analysis – Quarterly Update May 2015 $FB

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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