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Assumption building for Facebook Valuation

February 25, 2012
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We already have the historical growth drivers in place with us. In the last tutorial we had started discussing regarding the importance and steps in building assumptions for the model. We had released a simple template for Assumption building for Facebook Valuation.

Assumptions are probably the only “ART” part of the model and play the most important role in valuing companies. Today I give you a simple hint on Assumption building for Facebook Valuation, and you should try to build the Assumption for Facebook Valuation.

How to model assumptions?

The simple methods for modeling assumptions are

1. Analyzing the management discussion & analysis (MD&A) section of the S1, compititors move, regulatory & legal issue related to subject industry, unique issue of the subject company, analysts views and the overall economic activity’s effect on the subject company & industry and thereafter basing your decision on these analysis to model the assumptions.

2. Analyzing the past performance of the subject company by calculating its historical drivers, finding the trend and basing your decisions on the same.

3. Using the combination of MD&A and past trends (Mosaic Theory*) – rational thinking tells me that this would work out to be the best!

*Mosaic Theory allows collecting public, non-public and non-material information about a company in order to determine the value of the subject company’s securities.

Building Assumptions for Facebook Valuation

Based on our view on the industry and past performance, we have made our assumptions: example

Building Assumptions for Facebook Valuation

Building Assumptions for Facebook Valuation

Building Assumptions for Facebook Valuation

What do you think?? Where would FB go from here?

Share your thoughts!!

Next Steps

2moro we will provide you the filled assumptions layout. Till then explore the S1, historical drivers and the world of internet to analysis and interpret the future of social networking to build the assumptions on valuing FB!

Enroll for the entire Facebook Valuation Program here!

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About the Author

Pankaj Baheti is a CFA Level III Candidate currently working with Pristine. Prior to Pristine, he was working with Achi Group. He has done his Post Graduate Diploma in Management and loves trekking in the hills of Arunachal.


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