What's Wrong With My Valuation?

So I did a Facebook DCF, and getting a very high stock price of $174.52. Can someone maybe comment if this is correct? Seems a little high for me, so I am not sure what I am supposed to fix to make it lower and more reasonable.

Edit (1): I fixed it again, and it is at 168 now. Not sure if this is still a little high.

Edit (2): fixed the "terrible" formatting.

Any suggestions would help!

Attachment Size
FB Snapshot DCF v8 298.78 KB 298.78 KB
Excel File 42 KB 42 KB
 

Not to be rude, but your formatting is terrible. Some numbers have decimals, some have no decimals, some show two decimal points, some show one, some negative numbers are in parenthesis, some show negatives signs...

One thing that seems really high is your terminal multiple. I don't work in a tech group, but 19.3X EBITDA is very high. Where is 19.3X coming from? Again, I don't work with tech companies, so I could be mistaken.

 
Best Response
Alibabes56:

Fixed the formatting. Thanks for pointing it out. I was focusing too much on the numbers.

As for EBITDA multiple, I actually used the assumptions I read from an equity research report. Was it ok to do that?

Was the EBITDA multiple in the research report an LTM or NTM number? Or was it the exit multiple they assumed in a 5yr DCF?

Big difference for a growth company.

 

A few things: 1. All your projections are based on estimates, which inflate the value of your assumptions by a lot. I would start by putting down a couple years of actual figures so that the assumptions are a little more concrete. Your growth figures seem a little aggressive as well (i.e. You project growth at pretty high rates, if you look at historical data the numbers are much less.) Same thing pertains to your depreciation numbers, so I would go back and revise the entire model and the growth rates you use. 2. Your tax rate also seems pretty high, I did a quick tax calculation for the past couple years and your tax rate of 32% is not reflective of the actual tax rate.

To be very honest, I just looked at those few things and found inconsistencies/issues. I would go back and edit the model and be more in-depth. Also, not sure where you picked up your beta from but I would actually go back and add a couple more sheets (One with hard-coded previous years' data --> 5 years should be good). You can make assumptions about growth rates from here based on historical numbers.

Would also add a Comps sheet, so that you can do things like un-lever and re-lever beta to have a more accurate number for beta. Also would recommend cleaning up the model a little more, the numbers are everywhere and don't have a consistent flow.

I will say this, if you're making this for practice good on you - keep grinding a couple more of these (also would recommend creating full operating models). These will go a long way in improving your understanding/modelling skills.

Good luck.

 

Your projected growth rate is very high (~20% CAGR in explicit forecast period); your discount rate is very low (the discount rate you would expect from stable cash flow generating, mature business) and your exit multiple is through the roof. Who would pay 19.3x EBITDA for facebook? Better yet, who could pay that much for it?

Beta needs to be higher; consider company specific risk premium; consider size premium; consider revised growth estimate; consider replacing exit multiple with gordon growth capitalization rate based on a reasonable long-term growth rate.

“Elections are a futures market for stolen property”
 

In officiis ut aut fugit et dolores. Autem impedit enim tempora rerum quos asperiores sint. Autem excepturi aut expedita quaerat qui. Consequatur et et maiores incidunt qui sit. Nisi eum dolorem hic et. Minus earum ipsa consequatur ex sit sed recusandae omnis.

Omnis cum est laborum soluta similique labore quo quia. Reprehenderit hic quia illo accusantium quis eum sed.

Provident et esse sed modi adipisci. Dolores non eum dolore. Modi rerum vitae molestias. Enim et a ut iure perferendis. Qui est beatae et officiis explicabo. Maxime dolor voluptatem sunt neque. Fugiat rerum quaerat qui.

Dicta ratione culpa fuga et velit. Eum qui aut consequuntur libero provident aut itaque. Qui ea et ullam pariatur possimus in incidunt placeat.

It ain't what you know, it's who you know

Career Advancement Opportunities

March 2024 Investment Banking

  • Jefferies & Company 02 99.4%
  • Goldman Sachs 19 98.8%
  • Harris Williams & Co. (++) 98.3%
  • Lazard Freres 02 97.7%
  • JPMorgan Chase 03 97.1%

Overall Employee Satisfaction

March 2024 Investment Banking

  • Harris Williams & Co. 18 99.4%
  • JPMorgan Chase 10 98.8%
  • Lazard Freres 05 98.3%
  • Morgan Stanley 07 97.7%
  • William Blair 03 97.1%

Professional Growth Opportunities

March 2024 Investment Banking

  • Lazard Freres 01 99.4%
  • Jefferies & Company 02 98.8%
  • Goldman Sachs 17 98.3%
  • Moelis & Company 07 97.7%
  • JPMorgan Chase 05 97.1%

Total Avg Compensation

March 2024 Investment Banking

  • Director/MD (5) $648
  • Vice President (19) $385
  • Associates (86) $261
  • 3rd+ Year Analyst (13) $181
  • Intern/Summer Associate (33) $170
  • 2nd Year Analyst (66) $168
  • 1st Year Analyst (202) $159
  • Intern/Summer Analyst (144) $101
notes
16 IB Interviews Notes

“... there’s no excuse to not take advantage of the resources out there available to you. Best value for your $ are the...”

Leaderboard

1
redever's picture
redever
99.2
2
Betsy Massar's picture
Betsy Massar
99.0
3
Secyh62's picture
Secyh62
99.0
4
BankonBanking's picture
BankonBanking
99.0
5
DrApeman's picture
DrApeman
98.9
6
CompBanker's picture
CompBanker
98.9
7
dosk17's picture
dosk17
98.9
8
GameTheory's picture
GameTheory
98.9
9
kanon's picture
kanon
98.9
10
Jamoldo's picture
Jamoldo
98.8
success
From 10 rejections to 1 dream investment banking internship

“... I believe it was the single biggest reason why I ended up with an offer...”