Facebook Inc. (NASDAQ: FB)

Value PitchPaul Sigrist

October 20,2014

Agenda

• Company Background

• Business Opportunities

• Financials

• Valuation

• Recommendation

Company Background

Line of Business

• "Facebook is the best company, and the largest, in the social media arena." - Jim Cramer

• Technology, social media, marketing

• Networking, communication

Leadership

Mark Zuckerberg (Age 30) Chairman and CEO Mark Zuckerberg is responsible for the direction and

product strategy for Facebook since 2004

Sheryl Sandberg (Age 45) Chief Operating Officer Sheryl oversees the firm's business operations including sales, marketing, business development, legal, HR, and

communications.

LeadershipDave Wehner (Age 47) Chief Financial Officer

Dave Webner joined Facebook in 2012, and he now leads the finance, facilities and information technology

teams.

Mike Schroepfer (Age 39) CTO and VP of Engineering Mike Schroepfer heads the teams which build products,

services and infrastructure.

Chris Cox (Age 32) Chief Product Officer Chris Cox leads Facebook's product management,

design and marketing functions.

Significant Developments• Acquisition of Branch, WhatsApp, Oculus VR, ProtoGeo

Oy, Private Core and WaveGroup Sound in past 8 months.

• Facebook announced international launch of auto-play ads in May.

• Facebook now allows younger users (12+) to sign-up for the social media site while allowing parents to monitor content.

• Facebook is attempting to bring internet access to developing nations (India) through acquisitions, product development and innovation.

Business Opportunities

Opportunities• FB currently has over 1.2 billion MAU and expanding into

India, the Middle East and other developing markets.

• FB is beginning a new series of short-films to air on the site, which should lead to a more pronounced role in the film/entertainment industry.

• Providing developing nations internet capabilities creates an additional revenue stream for Facebook.

• The hiring of PayPal's President provides Facebook an expert payment system developer and creator.

Financials

Key MetricsFB TWTR AAPL

Mkt Cap $204.6B $30.8B $613.58BCurrent Price $78.69 $50.70 $102.47Ownership 51% Intl - 62% Intl

P/E 83.64 528.13 15.51Op Margin 43.5% -87.51% 28.84%

Net Profit Margin 23.78% - 20.10ROE 15.51% -45.42% 31.56%PEG 1.34 5.62 0.87

Earnings Growth YoY

137.50% - 12.30%

Stock Performance

Insider Trading

Valuation

Key Acquisition NPV• Branch acquisition (web conversation platform) - $15M cost with

$1B NPV on 10 year basis.

• WhatsApp acquisition (mobile instant messaging) - $19B cost with $161B NPV on 10 year basis averaging $1.70 rev per user.

• Oculus VR (virtual reality technology) - $2B cost with $3.5B NPV on 10 year basis.

• ProtoGeo Oy (fitness tracking app) - Undisclosed cost with $1.5B NPV on 10 year basis.

• WaveGroup Sound (sound studio) - Undisclosed cost with $1.2B NPV on 10 year basis.

Impact of Recent Acquisitions

• Facebook's five most impactful acquisitions in just the past 10 months provides FB with a NPV of $168.2B for just $21B in cost.

• The combination of the acquisitions of Branch and WhatsApp creates dominance for FB in the affordable/"free" mobile communication space.

• Facebook is positioned through these acquisitions to dominate the developing and emerging market social media and mobile communication spaces.

• Developing nations provide FB with access to 2B more MAU, a 40% conversion rate over the next 10 years would add an additional $7B annually to FB revenue at $1.70 per user (below current specs).

• In fiscal 2013 Facebook reported revenues of $7.87B.

• By 2018, as a result of recent acquisitions, Facebook's revenue will climb to $13.5B.

• By 2024, as a result of recent acquisitions, Facebook's revenue will reach $24.2B.

• Net income will surpass $10B by 2019 based on the 123% net income growth over the past three years and recent acquisition impact.

Key Assumptions• Facebook is able to maintain a minimum 25% revenue growth rate

over the next 5 years.

• Facebook is able to maintain at least a revenue of $1.70 per user over the next 10 years. (Currently generating $2.24 per user.)

• Facebook is able to maintain a minimum of 45% market share in the social media industry. (FB has 72.53% market share as of Aug. '14.)

• Facebook is able to maintain a minimum of 5% of all mobile ad market share. Facebook's market share is currently 7.79% and grew by 40% on a YoY basis.

• The mobile ad market continues to grow more than 5% annually, grew by more than 15% from 2013 to 2014.

Scenario Price • Bearish price: $88.93 (87.65 - $90.21)

• Revenue growth fails to maintain 25% growth on a YoY basis.

• Mobile ad spending industry growth falls to just 10%.

• Facebook revenue per user falls below $2.00.

• Facebook growth in the mobile ad space stagnates.

• Bullish Price: $112.04 ($109.76 - $114.31)

• Able to sustain current revenue growth.

• Able to capture 10% of mobile ad spending by mid 2015.

• Installation of further monetization methods of WhatsApp by the end of Q1 2015, to justify to shareholders the $19B acquisition in the short-term.

• Monetization of other key acquisitions and further capitalization of M&A activity.

Conclusion

Conclusion• Next generation growth opportunities.

• Well managed

• NPV valuation gives us a price of $100.49 vs. current price of $78.69; providing a 27.7% return.

• Q3 Earnings Announcement: October 28

Recommendation: Buy