The hottest social network, our favorite - Facebook filed for an IPO with SEC last week. It is turning out to be 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 LinkedIn, Zynga and Groupon and were close to the final valuation numbers (even we were surprised by the accuracy). 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.
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. 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 modeling! Tomorrow we will see, how we do these steps and then share the best practices with all!
Come on, Let's value FB and see how rich Zuckerberg is gonna be!!
An MBA from IIM Indore and a B.Tech. and M.Tech from IIT Delhi in Mathematics and Computing, Paramdeep 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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