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Learn Financial Modeling for Facebook Valuation

The hottest social network, our favourite - Facebook filed for an IPO with SEC. It turned out to be the most intriguing IPO ever and we thought why not cover it and let everybody learn the art of financial modelling.

We have been creating financial models and making them open source. We covered some other hot online properties – LinkedIn LinkedIn, Zynga and Groupon were close to the final valuation numbers (even we were surprised by the closeness). So we thought let’s try our luck and create a model to value Facebook and see if we come close this time as well!

Why Financial Modeling for Facebook?

The complexity in Valuing Real Companies

Valuing real companies is no child’s play. Although we advocate that financial modelling is 90% engineering and 10% art, but that 10% can change the numbers from 1 Bn to 10 Bn (If not 100!). There are so many variables that determine the valuation that it would take me a gazillion words to explain it and you would sleep by then.

The models that we created for other online properties IPO were quite complex. Readers loved it but deciphering them was an issue.

Let’s Start Simple

This time we decided to start Simple. We created a quick and dirty model for FB valuation and found that we got a valuation of ~ USD 81 Bn. Now that is close (to what I-bankers are thinking to be the valuation right now)! We open sourced the model open sourced the model.

Why Not Learn together?

Then an idea came to us! Why not share this learning with all the readers and help them see how to create this model on their own. The simple hope – If they learn with us today, they would contribute in creating the larger model. This model can be as realistic as one can create any company valuation model.

So we started working on creating the tutorials and the quizzes (who in this world would work, if there were no interesting quizzes and exams at the end of the day!)

The first Exam – Get historical statements

The first step in creating the model is to get the historical statements in place. So the first exam for you – Download the S1 filing (Hint: look for SEC), and get the numbers from the filing and fill in the empty template that you can download from here

Once you are done, you know your first step in modelling! In the next step we will see, how we do these steps and then share the best practices with all!

Come on … Lets value FB and see how rick Zuckerberg is gonna be!!

Next Step:

My experience of modeling tells me that 70% of the effort in creating the financial model goes in finding the relevant data to create the model. If you are starting new on modeling then this could be higher! So I thought before we start modeling for valuation of FB, why not let you find the data relevant to create the P&L (historical) for FB.

I hope that you found it yourself!

Where can I find Facebook’s Statements?

All companies want to take money from public (IPO - Initial Public Offering) to grow! Some do get a chance! : - ) [Facebook is one of them and believe me it’s going to take ~USD 5 Bn from people like you and me!]

So we are entitled to know the business of Facebook and how much money is it generating! The regulator ensures that and all the companies that access capital markets in US have to file S1 filing with the regulator. Mortals like you and me cannot get USD 5 Bn, but can always know what this 5Bn is going to generate! ;-)

So where do you get this S1 filing for Facebook?

Step 1:

Open Google (What else were you expecting??) and search for EDGAR

Step 2:

Click on the search result

Step 3:

Once the website is open, click on the Search for Fillings at the left side of the page

Step 4:

Inside the search for fillings click the Company or fund name

Step 5:

Enter your search information i.e. name of the company for which you need the S1

Step 6:

Click the Find Companies button (given at the bottom of the page)

Step 7:

All different types of fillings made by Subject Company will be shown on the page. Go to S1

Step 8:

Inside that you have to click on the file type There is an easy alternate way (Not scalable in long term)!

Next Steps

Now that you have the information with you, why don’t you try to fill the historical P&L? I am sure you would be able to do it now!!

Learn More:
Learn Financial Modeling for Facebook Valuation
Finding Facebook Statements Data to Model


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