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If you remember (I am sure if you are concentrating on modeling rather than facebooking, you would atleast remember a bit), we are creating a simple model to estimate the value that Facebook will have (and hence be in awe with the worth of Mark Zuckerberg! ;-))

Steps till Now

We have already modeled the historical statements:

Way forward

From today onwards we will shift our focus towards projecting the future of the Facebook. Now we move forward and find the drivers for the business. This is a simple model, so the drivers would be simple. The contest would have a more detailed model and hence would have detailed drivers!

Please note that projecting future is like looking into crystal balls – a subjective matter and forecasters are required to know about the past performance & growth of the company, managements & analysts view about the company and overall econom’s outlook/condition.

So your today’s exercise is to start modeling the historical drivers of FB. You have modeled P/L, B/S which we would use to calculate the drivers. We have the S1 filing of Facebook which can be used to understand the Management Discussion regarding the scope of the business. Using these two we can try to model the historical drivers.

What is Historical Drivers?

Historical drivers are the drivers which are like driver of a bus (in this case your business!!)!! These could be ratios of past performance and growth of a company.

For example, simplistically speaking:

Revenue = Price x Volume

So the driver of revenue is Price and Volume! If I break this further,

Price = function of demand and supply

Then the driver of Price could be the demand and supply and so on.

These drivers along with the management’s and analyst views are used to formulate the assumptions needed to project the future P/L and B/S of any company.

Template for Historical Drivers

I have for you a simple template to model the historical drivers for Facebook. Please note that this is a simple model and hence the drivers are simple (It would be appropriate to say that these are broad drivers!)

Go ahead & Understand what is driving Zuckerberg to be so rich!