25 This is the period we have the most visibility towards and where confident in forecasts is highest. 26 Use the FB model in SFAM and adjust the Income Statement to match these assumptions. 27 Hint Only change the assumptions in the SFAM Income Statement (GAAP) Sheet displayed below. 28 29 Growth Stage 30 Stage 1 - Near-term Growth 31 2020E 2021E 2022 32 Revenue Growth 20.0% 25.0% 23.5% 33 Gross Margin 81.9% 81.9% 81.9% 34 R&D Percent 19.0% 18.8% 18.8% 35 SG&A Percent 27.5% 27.0% 26.7% 36 Tax Rate 15.0% 19.0% 20.0% 37 38 What is your forecast for each year? 39 2020E 2021E 2022E 40 EBITDA (SMM) () 40,023 41 GAAP EPS* 9.06 42 *Full Diluted Earnings Per Share (EPS) row 58 in SFAM 43 44 2) Update the Balance Sheet forecasts for Facebook (FB) in SFAM for the near-term stage of growth (Phase 1). 45 We want to look at and adjust our forecasts for increases in Non-cash Net Trade Working Capital and Capital Expenditures. 46 These are the bases of the Investments that are integral to the Discounted Cash Flow model. 47 SFAM defaults the forecasts to be equal to the last actual year (2019 in this example) and we must evaluate whether the default forecasts 'make sense' and adjust them if not. 48 49 2020E 2021E 2022E Hint: Location on the Balance Sheet 50 Accounts Receivable Days 44.2 44.2 44.2 Row 92 - Leave these unchanged from the default 51 Accounts Payable Days 23.5 23.5 23.5 Row 94 - Update as specified 52 Other Current Assets 53 Percent of Revenues 2.6% 2.6% 2.6% Row 170 - Leave these unchanged from the default 54 Other Current Liabilities 55 Percent of Revenues 20.0% 20.0% 20.0% Row 173 - Update as specified 56 Investments in PP&E 57 Percent of Revenues 21.0% 20.0% 17.0% Row 203 - Update as specified 58 59 60 Why did we adjust the Accounts Payable to 23.5 days for our forecast? 61 a) the history is in the low 20s 62 b) the company provided guidance that collections would improve taking the Days Payable Outstanding to the low 20s 63 c) there is evidence that 2019's jump in payables is an outlier and not a permanent shift in the company's business model (change in customer base or change in terms) 64 d) all of the above 65 66 67 Look at the Discounted Cash Flow Sheet in the SFAM Model. 68 What is your forecast for Unlevered Free Cash Flow? (Find this in Row 29.) 69 70 2020E 2021E 2022E 71 Unlevered Free Cash Flow 19,779 72 73 Why do financial analysts forecast 'Unlevered Free Cash Flow' to perform the Discounted Cash Flow? 74 (a) Unlevered Free Cash Flow best represents the cash generating ability of a business. 75 (b) This is the most common approach of Wall Street financial analysts and looks at future cash flows before the costs of borrowing. 76 (c) When the analyst forecasts Free Cash Flows to Equity, considering leverage, the analyst must discount these cash flows by the Weighted Average Cost of Capital (WACC) which is a complex calculation 77 (d) a and b 78 (e) band 79 (f) all of the above 80 81 25 This is the period we have the most visibility towards and where confident in forecasts is highest. 26 Use the FB model in SFAM and adjust the Income Statement to match these assumptions. 27 Hint Only change the assumptions in the SFAM Income Statement (GAAP) Sheet displayed below. 28 29 Growth Stage 30 Stage 1 - Near-term Growth 31 2020E 2021E 2022 32 Revenue Growth 20.0% 25.0% 23.5% 33 Gross Margin 81.9% 81.9% 81.9% 34 R&D Percent 19.0% 18.8% 18.8% 35 SG&A Percent 27.5% 27.0% 26.7% 36 Tax Rate 15.0% 19.0% 20.0% 37 38 What is your forecast for each year? 39 2020E 2021E 2022E 40 EBITDA (SMM) () 40,023 41 GAAP EPS* 9.06 42 *Full Diluted Earnings Per Share (EPS) row 58 in SFAM 43 44 2) Update the Balance Sheet forecasts for Facebook (FB) in SFAM for the near-term stage of growth (Phase 1). 45 We want to look at and adjust our forecasts for increases in Non-cash Net Trade Working Capital and Capital Expenditures. 46 These are the bases of the Investments that are integral to the Discounted Cash Flow model. 47 SFAM defaults the forecasts to be equal to the last actual year (2019 in this example) and we must evaluate whether the default forecasts 'make sense' and adjust them if not. 48 49 2020E 2021E 2022E Hint: Location on the Balance Sheet 50 Accounts Receivable Days 44.2 44.2 44.2 Row 92 - Leave these unchanged from the default 51 Accounts Payable Days 23.5 23.5 23.5 Row 94 - Update as specified 52 Other Current Assets 53 Percent of Revenues 2.6% 2.6% 2.6% Row 170 - Leave these unchanged from the default 54 Other Current Liabilities 55 Percent of Revenues 20.0% 20.0% 20.0% Row 173 - Update as specified 56 Investments in PP&E 57 Percent of Revenues 21.0% 20.0% 17.0% Row 203 - Update as specified 58 59 60 Why did we adjust the Accounts Payable to 23.5 days for our forecast? 61 a) the history is in the low 20s 62 b) the company provided guidance that collections would improve taking the Days Payable Outstanding to the low 20s 63 c) there is evidence that 2019's jump in payables is an outlier and not a permanent shift in the company's business model (change in customer base or change in terms) 64 d) all of the above 65 66 67 Look at the Discounted Cash Flow Sheet in the SFAM Model. 68 What is your forecast for Unlevered Free Cash Flow? (Find this in Row 29.) 69 70 2020E 2021E 2022E 71 Unlevered Free Cash Flow 19,779 72 73 Why do financial analysts forecast 'Unlevered Free Cash Flow' to perform the Discounted Cash Flow? 74 (a) Unlevered Free Cash Flow best represents the cash generating ability of a business. 75 (b) This is the most common approach of Wall Street financial analysts and looks at future cash flows before the costs of borrowing. 76 (c) When the analyst forecasts Free Cash Flows to Equity, considering leverage, the analyst must discount these cash flows by the Weighted Average Cost of Capital (WACC) which is a complex calculation 77 (d) a and b 78 (e) band 79 (f) all of the above 80 81