1. FACEBOOK
FUNDAMENTAL AND RATIO ANALYSIS

2. Quick Facts
 Founder and CEO : Mark Zukerberg
 Year founded : 2004
 Head Quarters : Menlo Park, California (Corporate)
 IPO : May 18 , 2012 .
 Ticker Symbol : FB (Nasdaq)
 Total Employees : 12,691 (2015)
 Subsidiaries : Instagram, WhatsApp, Oculus VR, Private Core
 Vision :"People use Facebook to stay connected with friends and family, to discover what’s going on in the
world, and to share and express what matters to them."
 Mission :” to give people the power to share and make the world more open and connected."

3. What it does ?
Mark mentioned these as Facebook core values in his letter to investors while filling IPO
 Focus on Impact. Work on Solving big problems
 Move Fast. It’s okay to break things along the way. It means they are learning
 Be Bold. It’s okay to be wrong sometimes, but it’s not okay to take risks
 Be Open. We want others to share as much as possible so we have to live it to by starting at home with our
employees having access to almost everything to do with the company.
 Build Social Value. We exist not to be a company, but to contribute to the social good. So it better be
contributing real value all of the time

4. PEST Analysis
 PEST analysis describes a framework of macro-
environmental factors used in the environmental scanning
component of strategic management.
 Political Factors
 Economic Factors
 Social Factors
 Technological Factors

5. Political Factors
 Pressure from governments regarding privacy
 Government measures against Free Basics (Internet.Org)
 Net Neutrality Debate with various government telecom organisations
 Innovative advertisement campaigns to motivate people to support it
 Tax – Laws
 Data security concerns
 Prone to cyber invasion

6. Economic Factors
 Local economic factors influence local operations
 User base growth can get saturated in economically less stable zones
 Lacking Internet facilities
 Costly internet may reduce time spent online there by reducing add revenue
 Costly affair to capture local users in new markets

7. Social Factors
 It gives people to stay connected with their loved ones, people like it.
 Psychological reports give a dip in share value every time they released
 Targeted age segment , teens are most likely prone to get attracted to competitors
 Increasing negativity among adults who perceive it as waste of time
 Major concern over privacy and transparency among people
 Increasing mobile users every day
 Concentrating on marketing to shed negative image
 Increasing Facebook startups

8. Technological Factors
 Most advanced technology employed with own data centers
 Need technology to give right ads to right people at right time
 Data costs, reducing it by data compression
 To give cheaper and faster internet
 Huge investment available to invest in R&D
 Among competitors who come first with a new feature gets rewarded
 Virtual reality platform
 Facebook platform to develop mobile apps

9. Porter’s Five Forces Model
 Porter's five forces analysis is a framework that
attempts to analyze the level of competition
within an industry and business strategy
development
 Threat of new entrants
 Threat of substitute products or services
 Bargaining power of customers (buyers)
 Bargaining power of suppliers
 Intensity of competitive rivalry

10. Threat of new Entrants
Moderate
 It’s almost impossible to stop any new company
to enter social media industry
 Knowledge of coding and data center is all that is
needed to start.
 WhatsApp, Oculus VR everything else Facebook
owns so far can be done by anyone now
 It has technological advantage and fan base to
compete

11. Threat of Substitute Products
Moderate to high
 Now even LinkedIN and Twitter offer the same
feature as Facebook does like sharing and
messaging
 Increasing popularity of other innovative
platforms like Quora
 As new and innovative applications keep on
entering market it is easy to take FB’s mobile
market

12. Bargaining Power Of Customers
Moderate
 While users of social networking platforms hold high bargaining leverage, the same is limited for marketers
 Users on platforms including Facebook, WhatsApp, Instagram, Messenger, and marketers advertising on
these platforms, represent customers for Facebook
 Given the large-scale competition, the bargaining power of users is high.
 Since customers can choose from a wide array of messaging and other apps, this always restricts the fees
Facebook could charge for WhatsApp in the future.
 If Facebook starts increasing ad pricing significantly, marketers could start gravitating more towards other
social networking platforms.

13. Bargaining Power of Suppliers
Moderate
 Certain software and hardware providers may hold moderate bargaining power
 Facebook started its own data centers to stop depending on Amazon
 Providers of servers, storage, power, software, data center and office equipment, technology etc. represent
suppliers for Facebook.
 Bargaining power is moderate as Facebook is a large scale customer holding significant buying power.
 It started buying suppliers which offer very specific products
 However, there are only a few reputed suppliers for a large range of hardware and software supplies, and
hence this raises their bargaining power to an extent

14. Competitive Rivalry
Moderate to High
 A wide range of players from full featured platforms (Google +) to niche social networking sites and new
mobile apps could hamper Facebook’s user base growth
 FB continuously needs to innovate and to adapt to changing customer trends
 Google+ and Twitter can reduce the average time spent by active users on the FB , as these platforms offer
unique sets of features.
 There are several regional social networks, which compete with FB for users in their respective geographies.
 Increased regulation in certain markets such as China is more beneficial to regional players.

15. SWOT Analysis
A study undertaken by an organization to identify its
internal strengths and weaknesses, as well as its
external opportunities and threats.
 Strengths: characteristics that give it an advantage
over others
 Weaknesses: characteristics that have
disadvantage relative to others
 Opportunities: elements that the could be exploit
to its advantage
 Threats: elements in the environment that could
cause trouble

16. SWOT Analysis
Strengths Weaknesses
• Innovation and Technology
• Image due to CSR activities
• Impact on general public
• Integration with websites and applications
• More than a billion active monthly users
• Excellent users experience
• Understanding of user’s needs and behavior
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• ARPU is less
• Attitude towards net neutrality
• Single revenue source
• Attitude towards users’ privacy
• Don’t target all demographics
• Weak protection of users’ information
• Can’t personally customize website color etc..
Opportunities Threats
• Free Basics Success thus increasing user base
• Virtual Reality, applications in social network
• AI and augmented reality
• Expanding to new nations
• Diversify sources of revenue
• Open Facebook marketplace
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• New apps that enter everyday and attract teens
• FB generation getting older
• Users using ad-block extensions
• Governments tax laws and others security laws
• Identity thefts and increasing cyber crime
• Weak business model

17. Ratio
Analysis
FACEBOOK , LinkedIN and Twitter are used to compare different financial ratios

18. EBITDA MARGIN
 EBITDA margin is a measurement of a company's
operating profitability. It is equal to earnings
before interest, tax, depreciation and
amortization (EBITDA) divided by total revenue
 EBITDA margin = (EBITDA/Net Sales)
 Facebook is doing good compared to its
competitors
Facebook LinkedIN Twitter
0.6527 0.12308 - 0.202

19. Net Profit Margin
 Net profit margin is the percentage of revenue
remaining after all operating expenses, interest,
taxes and preferred stock dividends (but not
common stock dividends) have been deducted
from a company's total revenue.
 (Total Revenue – Total Expenses)/Total Revenue =
Net Profit/Total Revenue = Net Profit Margin
 Facebook is doing significantly better than its
competitors in Net Profit Margin
Facebook LinkedIN Twitter
20.57% -5.55% -23.49%

20. Return On Assets
 Return on assets (ROA) is an indicator of how
profitable a company is relative to its total assets.
 The formula for Return On Assets (ROA) = Net
Income / Total Assets
 Facebook is doing significantly better than its
competitors in ROA
Facebook LinkedIN Twitter
7.46% -2.67% -12.91%

21. Return On Equity
 Return on equity (ROE) is the amount of net
income returned as a percentage of shareholders
equity.
 ROE is expressed as a percentage and calculated
as Return on Equity = Net Income/Shareholder's
Equity
 Facebook is doing significantly better than its
competitors in ROE
Facebook LinkedIN Twitter
8.34% -4.26% -17.57%

22. Current Ratio
 The current ratio is a liquidity ratio that measures
a company's ability to pay short-term and long-
term obligations.
 Current Ratio = Current Assets / Current Liabilities
 Facebook is doing good compared to its
competitors in Current Ratio
Facebook LinkedIN Twitter
11.24 3.66 10.81

23. Price to Earnings Ratio
 The price-earnings ratio (P/E Ratio) is the ratio for
valuing a company that measures its current
share price relative to its per-share earnings.
 The price-earnings ratio can be calculated as
Market Value per Share / Earnings per Share
 Facebook is doing significantly better than its
competitors in P/E ratio
Facebook LinkedIN Twitter
83.69 -78.28 -15

24. Asset Turnover Ratio
 The Asset Turnover ratio is The ratio of the value
of a company’s sales or revenues generated
relative to the value of its assets.
 Asset Turnover = Sales or Revenues / Total Assets
 LinkedIN is doing better than Facebook in Asset
Turnover
Facebook LinkedIN Twitter
0.36 0.52 0.34

25. Price to Sales Ratio
 Price–sales ratio, P/S ratio, or PSR, is a valuation
metric for stocks.
 It is calculated by dividing the company's market
cap by the revenue in the most recent year
 Facebook is doing better than its competitors in
P/S ratio
Facebook LinkedIN Twitter
17.20 9.71 15.47

26. Debt to Equity Ratio
 Debt/Equity Ratio is a debt ratio used to measure
a company's financial leverage
 Debt - Equity Ratio = Total Liabilities /
Shareholders' Equity
 Facebook is doing better than its competitors
Facebook LinkedIN Twitter
0.1174 0.2593 0.3748

27. Historical Stock Performance

28. Analyst Recommendations
Yahoo Finance Analyst Recommendation

29. Thank You
Badri Prithvi Raj,
B.Tech 3rd year,ECE,
National Institute Of Technology Karnataka, Surathkal.