Team a facebook presentation

1

Facebook Stream

Team A: Erin Gibson, Zack Hargett, Lexi Jankun, Reed Romine, Mary Catherine Wilkison

November 29, 2012

Increasing market value through company acquisition and revenue growth

2

Grow Facebook revenue by expanding into a social networking web browser

By year 5, exceed analyst-projected revenue by $1.26B to achieve 20% increase in market value

Executive Summary

AcquireRockMelt

EstablishStrategic Partnerships

AdaptStream to Mobile Platform

• Integrate software

• Become first social network browser

• Partner with bing as default search engine

• Incorporate apps & ads to drive revenue

• Engage mobile-only users

• Enhance experience by linking detailed user data

Acquire3

Facebook must increase market value by growing revenue through a social network web browser

Cutting cost is not a viable option

Opportunity for revenue growth via

Web browsers

Leverage network to enhance customized

experience

• Customer expansion• Capital Investments• Advertisement

1 Billion Facebook users

Cost Synergies

Revenue Growth

$30.59 0.00% 1.00% 2.00% 3.00% 4.00%

0% $25.43 $27.85$30.59$33.67$37.15

5% $25.99 $28.48$31.29$34.45$38.02

10% $26.54 $29.10$31.98$35.23$38.90

15% $27.10 $29.72$32.68$36.01$39.77

20% $27.66 $30.35$33.38$36.79$40.64

25% $28.22 $30.97$34.08$37.58$41.52

30% $28.77 $31.59$34.77$38.36$42.39

Source: M&A Valuation Model

Acquire4

Facebook Stream will leverage Facebook user information through “Likes” & browsing history to customize experience

Source: Team Analysis; New York Times

Data on User Preferences

Data

on U

ser

His

tory

Note: Size of plot denotes number of users

Google Chrome• 310 MM users • Data through cookies

Facebook• 1 B users• Data through demographic questions

& Likes

Facebook Stream• Estimated 80 MM users in Y1• Data though cookies, Likes, &

demographic questions

Google +• 25 MM users• Data through demographic

questions & limited cookies

RockMelt• 1.2 MM users• Data through limited cookies &

demographic questions

Acquire5

Facebook Stream combines chat, notifications and web browsing to enhance user experience

Source: RockMelt Browser

Acquire6



Acquire7



Acquire8



Acquire9

Organic Devel-opment

Acquiring Rockmelt

$105

$110

$115

$120

$125

$130

We

b B

row

se

r S

tart

-up

Co

sts

Facebook will take advantage of cost and time efficiencies by acquiring RockMelt to create Facebook Stream

COST SAVINGS

cost savings

Acquisition of RockMelt provides for $6MM in cost savings and 2 years time savings in the

launching of Stream

$6MM

TIME SAVINGS

time savings1 YearAssimilation Costs

M&A FeesStand-Alone Value

* In Million $USDQ1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

DevelopmentNegotiationsStream Launch

Due DiligenceAdaptions to FB StreamStream Launch

2013 2014

Source: Team Analysis

Establish10

* In Million $USD

Strategic Partnership with Microsoft’s bing will earn Facebook Stream revenues of $105M

05 06 07 08 09 10 110

20

40

60

80

100

120

140

160

105

Revenue

Mozilla revenue from Google search deal

Jul.

08

Oct

. 08

Jan.

09

Apr

. 09

Jul.

09

Oct

. 09

Jan.

10

Apr

. 10

Jul.

10

Oct

. 10

Jan.

11

Apr

. 11

Jul.

11

0%

20%

40%

60%

80%

100%

Web Browser Market Share

Internet Explorer Firefox Chrome Other

Microsoft will partner with

FacebookContinue

relationship with Mozilla

Completely reliant on

search traffic

Competing Web

Browsers

Leaving would cause loss of traffic

& money

$Case Study

Google/Mozilla

Source: Extremetech; Computerworld; 25labs

Establish

Stream + “Facebook Bay” External Ad Network + Partnerships will position Facebook to compete with Google

11

Facebook Google

Social Network

Web Browser

Ad Network

Search Engine

Facebook

Stream

Facebook Bay

bing

Google +

Chrome

AdSense

Google

Facebook Bay external ads

target Stream users based on

“Likes” AND user history

(cookies)

Establish12

Developing partnerships with key businesses could increase user engagement and generate $101MM in revenue

Paid35%

Free65%

By Year 5, Facebook will generating $101.07MM per year by offering paid applications to Stream users

Y1 Y2 Y3 Y4 Y5 $-

$50

$100

$150 $101

Revenue from Apps

0% 20%

40%

60%

80%

100%

Facebook

App Developer

Pri

ce

Bre

akdow

nApp. Store

Facebook gain 5% of Paid App. Revenue

* In Million $USD

Source: Thechromesource; Team Analysis

Adapt13

Expanding Facebook’s browser to the mobile platform will improve ability to customize Stream to user preferences

1 Billion

600 MM

113 MM

Facebook users

Facebook mobile-only users

Facebook desktop & mobile users

Facebook Stream Mobile can always be with you, on the go

Placement Targeting

Desktop (News Feed + Side Bar)

Desktop News Feed

Mobile News Feed

1

2

3

Desktop (News Feed + Sidebar)

Desktop News Feed

Mobile News Feed

$0.00 $0.10 $0.20 $0.30 $0.40 $0.50 $0.60 $0.70 $0.80 $0.90 $1.00

0.00%

0.20%

0.40%

0.60%

0.80%

1.00%

1.20%

1

2

3

Cost per ClickClick through Rate

Source: TechCrunchSource: SEC.gov

Impact14

With 410 MM users adopting Stream by 2017, Facebook will generate $11.9B in 2017

2013 2014 2015 2016 2017$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$10,645

$11,908

Tota

l Face

book R

evenue

Str

eam

Revenue

Increasing trend of Stream Adopters Among Facebook

Users

2013 2014 2015 2016 20170

200400600800

100012001400160018002000

Million U

sers

Current Revenue ProjectionProjected Revenue with SteamAdditional Revenue from Stream

Non-Stream AdoptersStream Adopters

Revenue of $11.9B in 2017

* In Million $USD

410


Impact15

2013 2014 2015 2016 2017$0.00

$200.00

$400.00

$600.00

$800.00

$1,000.00

$1,200.00

$1,400.00

$25.00

$26.00

$27.00

$28.00

$29.00

$30.00

$31.00

Addit

ional R

evenue f

rom

Str

eam

Facebook S

tock P

rice

Facebook Stream will result in $1.26B added revenue in 2017, achieving a stock price of $30.63

bing RoyaltiesOther Search Engine RoyaltiesApp. PurchasesAdvertisements

* In Million $USD

In bing Royalties

In Other Search Engine

Royalties

In App. Purchases

In Advertisement

$190.7MM $30.7MM $101MM $940.9MM

$26.96

$28.02

$28.96

$29.83

$30.63

2017:

Source: Team Analysis; See Financial Appendix

Impact16

Risk & Mitigation

Risk Rating Risk Mitigation Strategy

Rockmelt will not allow Facebook to acquire

Leverage ability to discontinue current partnership and pursue acquisition of similar companies.

Insufficient customer demand for Facebook browser

Implement aggressive marketing campaign to raise user awareness

Uncertainty surrounding bing partnership acceptance

Seek partnership with Yahoo! or other search engineX

X

Probability

Impact

X


17

Grow Facebook revenue by expanding into a social networking web browser

By year 5, exceed analyst-projected revenue by $1.26B to achieve 20% increase in market value

Executive Summary

AcquireRockMelt

EstablishStrategic Partnerships

AdaptStream to Mobile Platform

• Integrate software

• Become first social network browser

• Partner with bing as default search engine

• Incorporate apps & ads to drive revenue

• Engage mobile-only users

• Enhance experience by linking detailed user data

General Introduction to Team A Analysis of alternative ideas

Due Diligence - RockMelt Key leaders (Management) Key Investors Milestones

Social Networking Marketing Industry Data Facebook Market Share of Social Networks Growth Strategies LinkedIn Revenue Streams

Search Engine Industry Analysis Microsoft Facebook Partnership Search Engine Industry Market Shares Search Engine Financials (1, 2) Web Browser Market Shares Advantages of Chrome

Marketing Plan Target Market

Marketing Examples (1, 2)

Finance Costs

◦ Developing web browser◦ Acquiring RockMelt◦ Conversion costs

Valuation of RockMelt Valuation of Facebook’s Current Stock Price Cost vs. Revenue Sensitivity Team Income Statement Analysis (1,2) Facebook Annual Income Statement Advertising Revenue Applications Revenue Stock Price Growth with Total Revenue Royalties from Search Engines Comparables

◦ Google Chrome Adoption Rate◦ Flash Player Adoption Rate

Mobile Growth of Facebook Users Facebook Ads on Various Media Facebook Mobile Only Users

Appendix:

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Erin Gibson

• B.S. in Business Administration

• Double Major in Spanish

Zack Hargett


• Concentration: Consulting

Reed Romine



Mary Catherine Wilkison


• Concentration: Finance and Consulting

• Minor in French

Lexi Jankun



• Double Major in Spanish

20

Analysis of alternative ideas for increasing market value

Alternative Capital Investment

Feasibility Long-term impact

Value to customers

Value to users

Buy Twitter

Monetize Mobile App

Organic browser development

Create professional

network

Acquire RockMelt


21

Eric Vishria, age:48Chief Executive Officer

Formerly VP of Marketing, Opsware (later acquiredby Hewlett-Packard for $1.65 BB). B.S., Stanford University

Tim Howes, age:52Chief Technology Officer

Previously developed Netscape browser; considereda global leader in software engineering.Ph.D., University of Michigan

Key members of RockMelt management team ensure company is a relatively safe investment

Source: RockMelt.com; Crunchbase

22

Marc AndreessenInvestor

Currently sits on Board of Directors for Facebook.

Ben Howowitz Investor

Former co-founder and CEO of Opsware (acquired by HP); VP of Business Technology Optimization for Software at HP.

RockMelt has solid capital backing, including one current Facebook Board member

Source: RockMelt.com; Crunchbase

23

Established company with leading

management team

Raises $40 MM from top Tech VC firms

Rockmelt for iPad launches

November 2010 June 2011 October 2012

Key milestones in RockMelt history indicate its status as an early-stage, but promising, start-up

Source: RockMelt.com

24

Social Networking industry data

Source: IBISWorld, Social Networking Industry Report

25

Facebook has 60.7% of market share and over 845 million users


26

Growth strategies


27

Q3 2011 Q3 20120

50

100

150

200

250

300

LinkedIn Revenue from Monetized Solutions

Premium SubscriptionsMarketing So-lutionsTalent Solu-tions

Revenue

Million

s o

f D

ollarsLinkedIn had 90

million users at the end of 2011; the company nowhas 187 million

users

Due to an increase in the number of users, LinkedIn has generated more revenue from monetized solutions

Source: Forbes.com

28

Facebook Microsoft’s Bing

• In 2007, Microsoft spent $240 MM for a 1.6% stake in Facebook• In 2010, Microsoft’s bing and Facebook teamed up for a “social search”

Source: Forbes: Microsoft Adds New Friends to Revamped Bing Search Service

Why Facebook should partner with Microsoft’s Bing

29

Search Engine industry statistics

Source: IBISWorld, Search Engine Industry Report

30

Search engine financials


31

Search engine financial (cont’d)


32

Web Browser market share

Source: 25labs

33

Able to identify security concerns on individual tabs and prevent from spreading elsewhere (Sandboxing- process isolation)

Javascript virtual machineEffective limiting of memory useUse of history to enable quick access to

most visited sitesCompatible with APPLICATIONSPlugIns separated into its own process

Advantages of Chrome

Source: Google Chrome

34

18-24 25-34 35-44 45-54 55-64 65+0

50

100

150

200

250

300

350

Mean # of friends on main networkMedian # of friends on main network

Age Groups

Social Network marketing would be most effective if targeted towards Millennials

Source: Mintel Oxygen: Overview of Social Networking

35

New! Try Facebook Stream today

310 MM unique daily visitors

3% download from home page

9 MM downloads

Simply placing advertisement on Facebook home page may yield substantial downloads

Source: Pingdom.com

36

Facebook Stream has arrived! Take this tour to learn about the all new Facebook oriented web browser, then download the browser for free!

Worldwide Facebook update will publicize Stream to all 1B Facebook users


37

• Effort Applied (E) = ab(KLOC)bb [man months]

• Development Time (D) = cb(Effort Applied)db [months]

• People required (P) = Effort Applied / Development Time [count]

Basic Constructive Cost Model

• Software project (Classified as “semi-detached”)• ab = 3.0• bb = 1.12• cb = 2.5• Db = 0.35

Assumptions

• Codebase Size: 6,449,950 lines• Estimated Effort:1,952 person-years• Average Employee Salary: $65,000

Inputs

Estimated Organic Development Costs: $127 MM

Estimated cost of developing a web browser…


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• $114.29 MMRockMelt Valuation

• $1.5 MM in total acquisition feesAssumptions

• $5.2 MMDevelopment/

Conversion Costs

Estimated Acquisition + Development Costs: $121 MM

…is more than cost of acquiring RockMelt


39

160 Employees on project$60,000 avg. salary

6 month duration of conversion

$5.2 MM Total Conversion Cost

Assumptions

Breakdown of conversion costs


40

$40 MM total

35% sold in equity

$114.29 MM

Assumption

Valuation

VC Fundingraised

Breakdown of RockMelt valuation

Source: Rockmelt.com

41

Valuation of Facebook’s current Stock Price

Source: Yahoo! Finance, Google Finance; M&A Valuation Model; SEC Facebook Inc. Form 10-Q

42

Cost vs. Revenue Sensitivity test to gain 20% increase in stock price

Projected 5 year Revenue according to current Yahoo! Analyst estimates

Revenue with added 2% increase over analyst estimates

2012 2013 2014 2015 2016 2017

4,756.7 5,804.8 6,916.6 8,093.4 9,335.9 10,645.0

2012 2013 2014 2015 2016 2017

4,756.7 6,025.9 7,315.6 8,721.7 10,250.5 11,908.4

Source: Yahoo! Finance, Google Finance, M&A Valuation Model

43

Current Profit & Loss of Facebook 2013 2014 2015 2016 2017

RevenueZynga $696.58 $830.00 $971.20 $1,120.31 $1,277.40Advertisements $5,108.24 $6,086.64 $7,122.16 $8,215.62 $9,367.58Total Revenue $5,805 $6,917 $8,093 $9,336 $10,645

Cost & ExpensesCost of revenue 860.00$ 1,032.00$ 1,238.40$ 1,486.08$ 1,783.30$ R&D 388.00$ 504.40$ 655.72$ 852.44$ 1,108.17$ General and administrative 707.00$ 777.70$ 855.47$ 941.02$ 1,035.12$ Total costs & expenses 1,955.00$ 2,314.10$ 2,749.59$ 3,279.53$ 3,926.58$

Gross Profit $3,849.82 $4,602.53 $5,343.77 $6,056.40 $6,718.40

Addl. Profit & Loss from Streammillions 2013 2014 2015 2016 2017

Addl. RevenueBing Royalties $105.00 $111.43 $128.57 $167.14 $190.71Other Search Engine Royalties $18.53 $19.60 $22.21 $27.34 $30.72App. Purchases $13.27 $27.93 $50.27 $73.17 $101.07Advertisements $84.32 $239.99 $427.28 $646.97 $940.89Total Revenue $221 $399 $628 $915 $1,263

Income Statement for Current Yahoo! Analyst estimates and addl. Revenue


44

Total Profit & Loss of Facebook with Stream Browser2013 2014 2015 2016 2017

RevenueZynga $696.58 $830.00 $971.20 $1,120.31 $1,277.40Bing Royalties $105.00 $111.43 $128.57 $167.14 $190.71Other Search Engine Royalties $18.53 $19.60 $22.21 $27.34 $30.72App. Purchases $13.27 $27.93 $50.27 $73.17 $101.07Advertisements $5,192.56 $5,036.99 $6,143.32 $7,333.73 $8,650.65Total Revenue $6,026 $7,316 $8,722 $10,251 $11,908

Cost & ExpensesCost of revenue 860.00$ 1,032.00$ 1,238.40$ 1,486.08$ 1,783.30$ R&D 388.00$ 504.40$ 655.72$ 852.44$ 1,108.17$ General and administrative 707.00$ 777.70$ 855.47$ 941.02$ 1,035.12$ Total costs & expenses 1,955.00$ 2,314.10$ 2,749.59$ 3,279.53$ 3,926.58$

Gross Profit $4,070.94 $5,001.48 $5,972.10 $6,971.01 $7,981.78Percent Growth over last year 23% 19% 17% 14%

Income Statement for Facebook with addition of Stream


45

Facebook Annual Income Statement and expense assumptions

In Millions of USD (except for per share items)12 months

ending 2011-12-31

12 months ending 2010-12-

31

12 months ending 2009-

12-31

12 months ending 2008-12-

31

Asssumed Growth

Revenue 3,711.00 1,974.00 777 272

Other Revenue, Total - - - -

Total Revenue 3,711.00 1,974.00 777 272

Cost of Revenue, Total 860 493 223 124

Percentage growth 74.44% 121.08% 79.84% 20.00%Gross Profit 2,851.00 1,481.00 554 148

Selling/General/Admin. Expenses, Total 707 305 205 156

Percentage growth 132% 49% 31% 10.00%Research & Development 388 144 87 47

Percentage growth 169.44% 65.52% 85.11% 30.00%Depreciation/Amortization - - - -

Interest Expense(Income) - Net Operating - - - -

Unusual Expense (Income) - - - -

Other Operating Expenses, Total - - - -

Total Operating Expense 1,955.00 942 515 327

Operating Income 1,756.00 1,032.00 262 -55

Interest Income(Expense), Net Non-Operating - - - -

Gain (Loss) on Sale of Assets - - - -

Other, Net 10 -1 2 -1

Income Before Tax 1,695.00 1,008.00 254 -56


46

Google2012 2013 2014 2015 2016 2017 2018

Revenue $8,580 10,733.58$ 11,701.75$ 12,757.25$ 13,907.95$ 15,162.45$ 16,530.10$ Advertisements $8,323 $10,412 $11,351 $12,375 $13,491 $14,708 $16,034

Facebook2012 2013 2014 2015 2016 2017 2018

Revenue $5,804.82 7,546.27$ 8,323.53$ 9,180.86$ 10,126.48$ 11,169.51$ 12,319.97$ Advertisements* $4,934.10 $6,414.33 $7,075.00 $7,803.73 $8,607.51 $9,494.09 $10,471.98

Stream2012 2013 2014 2015 2016 2017

Revenue $221.12 $398.94 $628.33 $914.62 $1,263.39Advertisements $84.32 $239.99 $427.28 $646.97 $940.89 0

Percent Revenue from Ad. 38% 60% 68% 71% 74%Revenue growth based on yahoo! Estimates

Advertising Revenue

Source: The Verge

47

* three months ended September 30, 2012

Google2012 2013 2014 2015 2016 2017 2018

Revenue 11,526.00$ 14,419.03$ 15,719.62$ 17,137.53$ 18,683.34$ 20,368.57$ 22,205.82$ Applications $173 $216 $236 $257 $280 $306 $333

Stream2012 2013 2014 2015 2016 2017

Revenue $221.12 $398.94 $628.33 $914.62 $1,263.39Application $13.27 $27.93 $50.27 $73.17 $101.07 *based on Google chrome, account for time taken to penetrate market

Percent Total Revenue 6% 7% 8% 8% 8%

Revenue growth based on yahoo! EstimatesNext Year Next 5 Years

Google 25.10% 9.02%Facebook 30% 10.30%

Applications Revenue

*based on Google chrome, account for time taken to penetrate market


48

Stock Price Growth with Total Revenue

2012 2013 2014 2015 2016 20170

2000

4000

6000

8000

10000

12000

14000

$23.00

$24.00

$25.00

$26.00

$27.00

$28.00

$29.00

$30.00

$31.00

$32.00

RevenueStock Price

Source: M&A Valuation Model; Team Analysis

49

Revenue 2012 2013 2014 2015 2016 2017Bing $105 111.43$ 128.57$ 167.14$ 190.71$ 225.00$ Other Search Engines $18.53 19.59842 22.21154 27.33728 30.71604 35.39658

Royalties from Search Engines

Mozilla Revenue from Search Royalties2005 2006 2007 2008 2009 2010 2011

Revenue from Google Search Royalties $49 $52 $60 $78 $89 $105 $138Growth From Previous Year 6.12% 15.38% 30.00% 14.10% 17.98% 31.05%

Revenue from other search engines $57.65 $61.18 $70.59 $91.76 $104.71 $123.53 $161.88Growth From Previous Year 5.77% 13.33% 23.08% 12.36% 15.24% 23.69%

Stream Revenue

Based on Mozilla Revenue

Source: Computer World

50

Source: The developer’s guide to browser adoption rates

Google Chrome adoption rate

51

Source: The developer’s guide to browser adoption rates

Flash Player adoption rate

52

Current growth rate: 5.54%

Source: 1 Billion Facebook Users: Now or Later, Technorati

Growth of Facebook users

53

Source: Tech Crunch

Facebook Advertisements on various media

54

Assumption on number of Facebook mobile-only users
