Learn Financial Modeling for Facebook Valuation

February 9, 2012
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Facebook's IPO was one of the most intriguing IPO ever and we thought why not cover it and let everybody learn the art of financial modeling via Facebook Valuation.

We have been creating financial models and making them open source. We covered some other hot online properties like LinkedIn, Zynga and Groupon and were close to the final valuation numbers. So we thought let's try our luck and create a model to for Facebook Valuation and see if we come close this time as well!

The complexity in Facebook Valuation

Valuing real companies is no child's play. Although we advocate that financial modeling 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 facebook 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 for Facebook at ~ USD 81 Bn. Now that is close (to what I-bankers are thinking to be the valuation right now)! We open sourced the model.

The First Step: 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 modeling! Tomorrow we will see, how we do these steps and then share the best practices with all!

Come on, Let's value Facebook and see how rich Zuckerberg is and compare if we can match the current valuation!! Smile


About the Author

An MBA from IIM Indore and a B.Tech. and M.Tech from IIT Delhi in Mathematics and Computing, is a director with Pristine. Prior to founding Pristine, he was working with Standard Chartered Investment Banking as a Senior Manager.

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