FB - CSFB July 2012

27 June 2012
Americas/United States
Equity Research
Consumer Internet
Facebook, Inc. (FB)

NEUTRAL* [V]
33.10
34.00
38.37 - 25.87
70,770.61
60,971.88
*Stock ratings are relative to the relevant country benchmark.

Target price is for 12 months.
[V] = Stock considered volatile (see Disclosure Appendix).
INITIATION
A Lot to "Like," But Valuation Looks Full
Rating
Price (26 Jun 12, US$)
Target price (US$)
52-week price range
Market cap. (US$ m)
Enterprise value (US$ m)
Event: We initiate coverage of FB with a Neutral rating and a $34 target

price. As the leading social platform, we view FB as well positioned to
capitalize on social media growth. However, valuation appears to account for
a fair amount of this upside, limiting our near-term enthusiasm.
Investment Case: Social media continues to rise in importance, accounting for

17% of U.S. time spent online, versus 10% in 2009, with FB leading the charge.
We believe FBs user scale (~900m MAUs) creates network effect, which is a
competitive advantage. In addition to Metcalfes Law, the source of FBs network
effect is its user data, particularly individual identity, which is difficult to replicate.
Also, FBs platform is powerful; Facebook Connect provides the ability to

leverage user credentials on sites outside of Facebook for personalization.
This is expanding Facebooks influence across the Web and allows
Facebook to act as a social operating system.
Our proprietary survey of advertisers finds that marketers view FBs

targeting ability as a key differentiator versus competitors, with a majority
generally satisfied with the Facebook ad solution. This provides us with
confidence that ad growth is sustainable for Facebook.
Catalysts: We estimate that FB can sustain 24% CAGR in revenue over the
next five years, with similar EBIT growth, assuming stable margins.
Valuation: While we are bullish on FBs prospects, we think current

valuation (23x 13 EV/EBITDA) captures a fair amount of optionality in the
business. Our DCF points to a $34 target price and suggests the market is
embedding in ~$11/share of value from future business opportunities.
Research Analysts
Spencer Wang
Dean Prissman
Share price performance

Daily May 21, 2012 - Jun 26, 2012, 5/21/12 = US$34.03
35
30
25
May-12
Price
Indexed S&P 500 INDEX
On 06/26/12 the S&P 500 INDEX closed at 1319.99
Quarterly EPS
2011A
2012E
2013E
Q1
0.19
Q2
0.11
Q3
0.11
Q4
0.14
Financial and valuation metrics

Year
EPS (CS adj.) (US$)
Prev. EPS (US$)
P/E (x)
P/E rel. (%)
Revenue (US$ m)
EBITDA (US$ m)
OCFPS (US$)
P/OCF (x)
EV/EBITDA (current)
Net debt (US$ m)
ROIC (%)
Number of shares (m)
BV/share (Next Qtr., US$)
Net debt (Next Qtr., US$ m)
Net debt/tot cap (Next Qtr., %)
12/11A
0.43
77.0
562.2
3,711.0
2,297.0
0.55
30.8
-3,510
83.88
2,138.09
12/12E
12/13E
0.48
0.63
69.5
52.7
550.0
469.2
4,847.7
6,455.6
2,544.2
3,415.0
0.84
0.98
39.6
33.7
27.8
20.7
-9,799
-10,603
96.66
103.95
IC (current, US$ m)
EV/IC (x)
Dividend (Next Qtr., US$)
Dividend yield (%)
12/14E
0.82
40.3
398.6
8,210.3
4,392.5
1.26
26.3
16.1
-12,120
134.82
1,389.00
Source: Company data, Credit Suisse estimates.
DISCLOSURE APPENDIX CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, INFORMATION ON

TRADE ALERTS, ANALYST MODEL PORTFOLIOS AND THE STATUS OF NON-U.S ANALYSTS. U.S. Disclosure:
Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be
aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this
report as only a single factor in making their investment decision.
CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS
BEYOND INFORMATION
Client-Driven Solutions, Insights, and Access
27 June 2012
A Lot to Like, But Valuation Looks

Full
Executive Summary
We initiate coverage of Facebook with a Neutral rating and a $34 target price. As the
leading social platform, FB is well positioned to capitalize on growth in social media and
the trend toward real identity/authentic online experiences, and greater user
personalization on the Web. Therefore, we view Facebooks growth prospects as bright
and believe that FB has other monetization opportunities beyond its core first-party
advertising and Credits for social games. However, valuation (23 times 2013 EV/EBITDA)
appears to account for a fair amount of this upside, limiting our near-term enthusiasm.
Investment Thesis
Social Media Growing in Importance
In our view, the future of the Internet will be increasingly about people, connections, and
the context of content we discover, as users continue to transition more of their lives online
and incorporate their real identity in their digital activities. Consequently, social media is
rising in importance, accounting for 17% of total time spent online by U.S. Internet users, a
700 bps increase from 2009. In turn, social media now eclipses activities such as e-mail,
gaming, and instant messaging. Facebook, as the largest social platform with over 900m
monthly active users as of 1Q12, is well positioned to capitalize on this trend.
Network Effect Provides Competitive Advantages
We believe that Facebooks user scale creates network effect, which can act as a
competitive advantage and a self-reinforcing virtuous cycle. In addition to Metcalfes Law,
the source of Facebooks network effect is its user data, particularly around individual
identity, which we believe could be leveraged to drive more engagement, and more
monetization opportunities, which, in turn can be reinvested in more features to grow
users. In our opinion, this will be difficult for competitors to replicate.
The Social Operating SystemFacebook Platform
We also like the platform approach Facebook has taken toward social. With the FB
platform, social interactions are no longer limited to activity conducted on a social site (e.g.,
Facebook.com), as Facebook Connect provides the ability to leverage user credentials on
content, applications, and ecommerce sites outside of Facebook for authentication and
personalization. This platform approach is expanding Facebooks influence of social
across the Web, and in our opinion, allows Facebook to act as a social operating system.
Advertiser Survey Says
Facebooks main revenue stream is advertising (~85% of the total). Our proprietary survey
finds that while social advertising is still nascent, marketers view FBs targeting ability as a
key differentiator versus competitors. Therefore, we find that the majority are generally
satisfied with the Facebook ad solution and, in particular, the ability to finely target users.
This provides us with confidence that advertising growth is sustainable for Facebook and
we project a 24% five-year CAGR for ad revenue.
Attractive Financial Model
Combined with our forecasts for its payments business, we estimate that Facebook will be
able to sustain 24% CAGR in revenue over the next five years. Assuming that non-GAAP
EBIT margins remain stable in the low-40% zone, this should translate into similar EBIT
growth. Free cash flow is forecast to grow from an estimated $486 million in 2012 to over
$4.48 billion by 2017.
Facebook, Inc. (FB)
27 June 2012
Valuation
We are setting a $34 target price for Facebook, based on our DCF model, which assumes
a 10% WACC and 3% terminal growth. Our DCF values Facebooks core business at
~$23 per share, within which we attribute ~$1.50 per share for the NPV of Facebooks
NOL. The balance of our price objective reflects the NPV from blue sky opportunities
related to mobile advertising, a third-party ad network, and expanding payments beyond
social games (collectively ~$11 per share). Our target price implies modest upside from
current levels, implying that a fair amount of optionality is priced into FB shares.
Risks
Key risks to the investment story include Facebooks ability to monetize mobile usage,
which remains early stage, while the long-run effectiveness of social advertising is still also
somewhat unproven. We also note that Facebooks capital structure contains dual class
voting shares with ~56% of Facebooks voting power controlled by founder, chairman, and
CEO Mark Zuckerberg. Given its volume of user data, Facebook is subject to complex and
evolving laws and regulations that pertain to privacy, data protection, and related matters,
which could affect monetization opportunities.
Roadmap to This Report
Friends with Benefits: In this first section, we provide a brief overview of social
media and Facebooks relative positioning in the ecosystem.
The Origins of Network Effect: We delve into the key sources of Facebooks network
effect; Metcalfes Law and data around user identity.
The Facebook Platform: We articulate the strategic benefit from the platform
approach that Facebook has undertaken with respect to social.
Facebook User Growth: We lay out our forecasts for FB user growth over the next
five years and our underlying methodology.
Monetization and the Social OS: We discuss in this section high-level monetization
opportunities for the Facebook platform, assuming continued user growth.
Advertising: We delve into Facebooks main revenue stream and highlight key
conclusions from our proprietary survey of advertisers and also provide our estimates
for Facebook advertising over the next five years.
Payments: We walk through our bottoms-up estimates for payment revenues related
to social games.
Financial Forecasts: We discuss our five-year financial projections for Facebook.
Valuation: We provide a detailed valuation analysis of Facebook, which includes a

valuation of Facebooks core business, the NPV of its NOL, and several blue sky
opportunities.
Investment Risks: We outline the key risk factors to our investment thesis.
Management: In this portion of the report, we provide the background for key
Facebook executives.
Facebook, Inc. (FB)
27 June 2012
Friends with Benefits

Social Is a Growing Global Phenomenon
Social media can be defined as the use of Internet-based technologies to enable
communication and interactive dialogue between users. The concept of social networks is
not new and has seen various iterations since the early days of the Web: GeoCities,
Friendster, Myspace, etc. However, in recent years, social networks have evolved into a
growing center of user engagement for content and a platform that is expanding across
the Web for a wide array of activities and applications. For instance, based on third-party
data, as shown in Exhibit 1, in 2011, social media consumed 17% of total time spent
online by U.S. Internet users, a 700 bps increase from 2009. In turn, social media now
eclipses activities such as e-mail, gaming, and instant messaging.
Exhibit 1: % of Minutes Spent Online; U.S. Internet Population, 2009-11*
2009
2010
2011
% of Time Online (US)
30%
25%
25%
20%
17%
13%
15%
10%
21%
19%
1
4%
12%
10%
1
0%
6%6%
5%4%
2%
5%
5%
5%
4%
3%
5%4%4%
2%2%
2%
Sports
Onl ine Gaming
News/Informati on
Multimedi a
Entertainment
Instant
Messaging
E-mail
Portals
Soci al Media
0%
Source: comScore *Note: This dataset only pertains to desktop minutes, and therefore likely understates
the % of time online for Social Media and Online Gaming.
Social media use is also a global movement. As detailed in the Exhibit 2, we can see that
many countries rival and exceed the United States in terms of hours spent on social media
platforms.
Exhibit 2: Avg. Hours Spent per Month on Social Networking, Across Geographies,
Spain
5. 5
Indonesia
I taly
Puerto Rico
Germany
6. 3 6.3 6.2 6.1
Malaysia
Nor way
United States
Mexico
7 6.9 6.8
United Kingdom
Canada
Peru
Venezuela
Colombia
Philippines
Chi le
Turkey
Russia
Israel
12 11.1 10.7
10.4 10.2
11
9.8
10
8. 7 8.5
8.3 7.9
9
7.7 7. 7
8
7
6
5
4
3
2
1
0
Argentina
Hours Spent/Visitor
October 2011
Source: comScore Media Metrix.
Facebook, Inc. (FB)
27 June 2012
Within the social media category, Facebook is the clear leader, with ~901 million global
users as of 1Q12, up from 360m in 2009, growth of 150% in two and a quarter years.
Facebooks expansion has also been truly global, with its user base well distributed
throughout all regions in the world.
FB Monthly Active Users
Exhibit 3: Facebook User Base in Mils, 1Q12

1,000
900
800
700
600
500
400
300
200
100
0
Exhibit 4: Facebook User Base in Mils, 1Q12

901
845
N. America, 188 ,
21%
ROW, 242 , 27%

608
360
Europe , 241 , 26%

Asia, 230 , 26%
2009
2010
2011
1Q12
Source: Company data.
In total, we estimate Facebooks user base represents over 42% of the worlds Internet
user base. This places Facebooks share of users well ahead of its peers, despite having
essentially no presence in China.
Exhibit 5: Social Media Properties by Users, 1Q12
Number of Users by Social Networking Site, 1Q12

1000
Number of Users
800
600
400
901
721
200
300
200
150
147
Twitter
LinkedI n
Renren
0
Facebook
Tencent
Sina Weibo
100
Google+
20
Foursquare
Global Penetration %
Global Internet User Penetration by Social Networking Site, 1Q12

45%
40%
35%
30%
25%
20%
15%
10%
42%
33%
14%
5%
0%
Facebook
Tencent
Sina Weibo
9%
7%
7%
Twitter
LinkedIn
Renren
5%
Google+
1%
Foursquare
Source: Company data, Credit Suisse estimates. *Note: (1) For the penetration calculation, we use total global Internet users as opposed to the
addressable users, where we would exclude geographies that are not viable markets. (2) Facebook based on MAU company disclosures. (3)
Twitter based on estimated monthly unique visitors. (4) For Google+, we used comments by the company pertaining to monthly engagement with
Google+ related products.
Facebook, Inc. (FB)
27 June 2012
The Origins of Network Effect

While we are not believers in simply big for the sake of being big, we believe that one of
Facebooks competitive advantages is its scale of users, which creates network effect on
multiple different levels. In our opinion, this is a significant advantage against other
competitors and we highlight several sources of Facebooks network effect:
Metcalfes Law;
Identity and User Data;
The Facebook Platform.
Metcalfes Law
First, as stated by Metcalfes law, the value of a network grows proportional to the number
of connected users. The classic example is the telephone system: if there was only one
user of a telephone system, the network is largely useless. However, as the number of
users rises, the value of the network similarly grows and becomes self-reinforcing.
Exhibit 6: Metcalfes Law
Utility of
Network
Increases
(Metcalfes Law)
Increase
Number of
Users
Will the Real You Please Stand Up?

The second source of Facebooks network effect is user data, particularly around
individual identity, which we think could be leveraged to drive more engagement and
monetization, which in turn could be reinvested in more features to grow users.
Exhibit 7: The Second Source of Facebooks Network Effect
More User Data
Utility of
Network
Increases
(Metcalfes Law)
Increase
Number of
Users
Invest in More
Features on the
Platform
Drive More
Engagement
Increased
Revenue
Opportunity
Facebook, Inc. (FB)
27 June 2012
More specifically, we think the future of the Internet is and will be increasingly about
people, connections, and the context of content we discover. This will be driven by hard
data centered on three specific concepts:
Real identity;
Social graph;
Open graph.
Unlike some of the early social networks, Facebook is predominantly driven by real name
identity, as opposed to pseudonyms or simple e-mail addresses (profile pages of pets
aside). If users want to be connected to and found by other members on the platform, they
need to be able to find you as a person. In addition, we subscribe to the view that users
likely want authenticity, integrity, and control in their online interactions.
After joining Facebook, users create a detailed profile of their demographic and personal
information, an opt-in choice. On Facebook, users can input their favorite books, music,
movies, as well as relationship status, religious affiliations, and other elements. The more
detailed a user profile, the more value the network receives.
On Facebook, these profile attributes are combined with a users activities (status updates,
posting, commenting, uploading pictures or videos, and the utilization of third-party
applications). In turn, this establishes a users explicit graph. A users explicit graph is the
deliberate description of ones connections to people, interests, likes, and the collective
activities on the social media platform. This, in turn, is linked directly to ones real name
identity. (Please see Exhibit 8.)
Exhibit 8: Explicit Graph
Music
Like
Status Update
URLs
TV Shows
Given Name
Emails
Family Name
Address
Movies
Last Updated
Birthday
User
Display Name
ID
Verified Email
Relationship
Current Location
Photos
Organizations
Check-Ins
Gender
Friends List
About Me
Schools
Source: Credit Suisse.
This data is the source for a secondary or implicit graph. The implicit graph is inferred by
the activities, interests and social connections of the user. Said another way, based on
what a user has described about himself/herself, social media platforms such as Facebook
can interpret this data to derive other areas of interest for each unique user.
Facebook, Inc. (FB)
27 June 2012
Exhibit 9: Implicit Graph Derived from Explicit Graph and User Activity
TV Actor
Content and Context of Status Updates
Commented URLs
Visited URLs
Network of Show
Music Artist
Possible Like
Linked URLs
TV Show Genre
Music Attributes
Display Name
Film Genre, Actors, View
Age Comparison
Time of Emails
User
Email Platform
Change in Relationship Status
ID
Subject of Emails
Photo Location
Org Type
Photo Contents
Type of Check-Ins
Gender Targeted
Degree Major, Degree Minor
Content of About Me
Implicit Graphs of Social Graph
Degree Level
Next, with real identities, connecting with people on Facebook creates an individuals
social graph, or the global mapping of everybody and how theyre related. The social
graph is comprised of the strong ties established and the weak ties that emerge from
these connections on the social media platform.
Strong ties are close friends, direct business colleagues, or desired individuals to
follow on the platform (in the case of subscriptions). Users find and build connections
on the social media sites with their strong ties first.
Weak ties are the friend of a friend connections that become implicit (implied) with
each new strong tie added to ones network.
A simple social graph is represented below.

Exhibit 10: Simple Social Graph
Strong Tie
Friend - Business - Follow
k
k
k
ea
a
o
o
of
e
Ti
d
ie
ie
ien
Fr
Strong Tie
n
n
nd
rie
m
m
Im
cit
pliii
Friend - Business - Follow
F
F
F
C
C
C
ion
c
ct
ec
n
nn
on
Source: Framework from Mark Granovetters Strength of Weak Ties, 1973.
In addition, content (information) posted on Facebook can be distributed across a users

strong ties and weak ties. In turn, Facebook captures the activity of users on the site. We
define these activity streams as users performing actions on particular objects that they
would like to share. In other words, activities on Facebook are done with the express
purpose of sharing them with a users network or a subset of ones network. The social
graph can then share this social object with other members of their respective networks,
Facebook, Inc. (FB)
27 June 2012
and, in some cases, algorithms exist that share the social object with those in ones weak
tie network, for example, a photo posted by you is liked by someone in your strong tie
network, and in turn this photo may appear on the homepage feed of your friends friend
(weak tie), despite you not being connected with this individual.
Exhibit 11: Activity Stream Framework
Post
Buy
User
Like
ID
Social Object(s)
Checked-In
Link to
Pics, Link, Video, News,
Social Games, Location,
Person, Friend
Follow
Source: Credit Suisse, Activity Streaming Working Group activitystrea.ms.
Status UpdateGrowing Engagement Drives Activity in the Stream

In turn, these activities have a positive impact on engagement. In other words, active
Facebook users are no longer simply just connecting and communicating with each other.
They are also finding, reading, and watching content. Moreover, users also curate,
comment, share, rate, review, and recommend new content and new products to and from
their network of social connections.
Exhibit 12: In Social Media, User Is the Sum of Identity and Activity Stream
Activity Stream
Uploaded
Content
Likes
Status
Demographic Info
User
Age
Marital
Status
Gender
Ethnicity
ID
3rd Party
Apps
Cross
Platform
Personal Info
Location
Social
Graph
Work
Purchases
This notion is supported by data on Facebooks user behavior. As detailed in Exhibit 13,
on average, 25% of Facebook users utilize the Like button for brands and content on a
daily basis, the most frequent activity on the platform. In addition, 22% and 20% comment
on posts and photos, respectively, while 15% of users on average also update their status
each day.
Facebook, Inc. (FB)
27 June 2012
Exhibit 13: Facebook Activities by % of Daily Users that Engage with Activity
50%
40%
30%
20%
10%
22%
15%
25%
20%
11%
0%
Update Status
Comment on Posts
(Status, etc.))
Comment on Photos
"Like" button for

Content/Brand
Sending Private
Message
Source: Pew Internet Research, 2011.
This also seems consistent with data on users time spent for each section of the
Facebook site. Over one quarter of time is spent on each members Facebook newsfeed;
the central mechanism on Facebook for users to learn, read, and discover news, updates,
and content from their network.
Photos and photo sharing are also extremely important. As seen in the Exhibit 14, photos
account for approximately 17% of time spent on Facebook. According to company data, in
1Q12 on average, 300 million photos were uploaded to Facebook each day. To put this in
context, Pixable, the maker of a photo discovery tool estimated that in the summer of 2011,
Facebooks photo repository was already 3-4 times the combined size of the three nearest
competing offerings. From commenting to uploading, photos form pillar of engagement on
the platform.
Exhibit 14: Share of Time Spent on Facebook by Content Section
45%
40%
35%
30%
27%
25%
25%
21%
20%
17%
15%
10%
10%
5%
0%
Homepage/Newsfeed
Profiles
Photos
Apps and Tools
All other
Source: comScore Mediabuilder
Facebook, Inc. (FB)
10
27 June 2012
The Facebook Platform

F8 Circa 2007
The third source of Facebooks network effect is the platform approach it has taken toward
social, which we discuss in detail in this section of the report. On May 24, 2007, Facebook
unveiled its F8 platform, which allows third-party developers to seamlessly create and
integrate applications that run on Facebook. As we wrote back in 2007:
In launching this platform, Facebook is adopting an open approach and is evolving its
social network into a platform on which many applications can be developed.
We think the two main implications are that the Facebook platform will:
1. Improve the user experience by offering Facebook members new content and features.
2. Opening Facebook up to basically all developers should accelerate innovation for the
Facebook service.
Expanding Across the Entire Web

Perhaps, an even more radical change is that social interactions are no longer limited to
activity conducted on a social site (e.g., Facebook.com). Facebook has also led the way
with this approach, as Facebook Connect provides the ability to leverage user credentials
(e.g., identity) on content, applications, and ecommerce sites outside of Facebook for
authentication and personalization. This platform approach is expanding Facebooks
influence of social across the Web.
For example, social plug-ins and the use of Facebooks Open Graph protocol create realtime interactions between content sites and Facebook. If we sign in to websites through
integrated protocols, social becomes the medium for our interactions. Facebook owns the
social activity users perform on third-party sites through social plugins and Open Graph
API. In 2011, third-party data suggested that more than 2.5 million websites had integrated
with Facebook, including 80 of the top 100 websites in the United States. In addition,
10,000 social plugin implementations were being added per day. At the time the company
also stated that over 250 million people were interacting with Facebook on external
websites. This data demonstrates the value and role Facebook and social media platforms
play in distribution and interaction.
Exhibit 15: Facebook Extends Beyond Its Platform to the Entire Web
Usage
Data
3rd Party
Website
Social
Platform
Personal/
Social Data
Interaction
Personal/
Social Data
Personal/
Social Data
Content & Info

from Network
Personalized
Content
User
Usage
Data
Interaction
3rd Party
Website
Personalized
Content
Facebook, Inc. (FB)
11
27 June 2012
An ExampleConnected Content in Context

For example, Facebook supports real-name identity and includes an extensive array of
data points to define ones profile. Users opt in to this profile, now known as ones timeline,
and fill out as much as they prefer to disclose. The more information users provide to the
profile, the more information is positioned into the explicit graph and utilized by the social
media platform.
Exhibit 16: Real Name Identity Profile
Source: http://www.facebook.com
In addition, social plugin features offered by Facebook are integrated into third-party sites.
This enables users to easily push content back to their activity stream on Facebook
(similar services exist for Twitter and LinkedIn). Users can do this using a number of
highlighted features; the integrated Like button or the Send to Facebook button are
examples.
Facebook, Inc. (FB)
12
27 June 2012
Exhibit 17: Integration of Social Plugins
Facebook Like
Button
Tweet This
Send to
Facebook
Source: http://ringtv.craveonline.com/
The Open Graph from Facebook enables developers to integrate social objects that
represent real-world things such as movies, teams, restaurants, etc. into the social graph.
This effectively makes them a page within the Facebook platform. In addition, the content
and experience on a third-party site are more personalized based on elements of a users
social graph.
Exhibit 18: Leveraging Facebook for PersonalizationOpen Graph
Were using Facebook to personalize your experience
Logged In Via
Facebook
Identity
Source: http://www.rottentomatoes.com/
Authenticating through the social media platform and third-party sites allows for social
tools to be distributed across the platform for use; in this case, the Comments capability.
Facebook, Inc. (FB)
13
27 June 2012
Exhibit 19: Social Objects Positioned from Third-Party Sites to Facebook
Source: http://www.rottentomatoes.com/
Beyond Buzz Words

Facebooks platform approach, the juxtaposition of the data from real identities, the
implicit, explicit, and social graph could theoretically re-architect and re-organize the web.
What do we mean by this? To take a step back, historically, the Internet was a collection of
information sources. While websites were hyperlinked to each other, it was lacking in user
context and interaction, as we illustrate in Exhibit 20.
Exhibit 20: Traditional Organization of the Web
User
Web
Apps
User
User
Content
E-Com
Web
Apps
Read
W rite
Read
W rite
Web
Apps
User
Content
Read
Write
E-Com
Web
Apps
E-Com
Read
W rite
User
Content
Read
Write
User
Read
W rite
User
Content
User
Content
E -Com
Web
Apps
Web
Apps
User
Content
E-Com
E-Com
User
User
As a result, prior to the establishment of current day social media platforms, users
searched for content and information in the Internet cloud, relying heavily on the power of
search engines to index, rank, and filter results. In other words, search engines and
Google in particular helped to solve the Paradox of Choice for online users.
Facebook, Inc. (FB)
14
27 June 2012
Exhibit 21: Traditional User Query and Content Model in Search
Content &
Information in the
Cloud
User
User
Content
Queries
Content
Queries
Queries
Content
Search Engines Index, Organize, and Filter Content &

Information
User
Today, Facebook and other platforms, through the data captured by real identities and the
graph, have layered in user preferences and more context into the organization of the
Web. This enhances the ability to organize content, allowing for greater personalization of
content based on our stated interests (the explicit graph), inferred interests (implicit graph),
and the tastes of people important in our lives (the social graph).
Exhibit 22: Social Enables Content in Context with the Social Graph
x
Read
Write
Read
Write
User
Content
E-Com
User
Content
E-Com
Web
Apps
Read
Write
User
Content
E-Com
Web
Apps
Read
Write
Web
Apps
User
E-Com
Web
Apps
User
ID
User
Content
ID
User
User
ID
ID
User
User
ID
ID
Read
Write
User
Content
E-Com
Web
Apps
Read
Write
Web
Apps
User
Content
E-Com
Facebook, Inc. (FB)
15
27 June 2012
We highlight several key implications:
Increased Velocity of Virality: The growing connection among social media users is
increasing the velocity of information flow. Therefore, traditional word of mouth has
been significantly augmented. In turn, this has enhanced the distribution or virality of
compelling content and information.
Greater Discovery: With more personal data available, social platforms can improve
existing techniques around recommendations and discovery of content. For instance,
Facebook has the EdgeRank algorithm. This algorithm scores content within users
Newsfeed on Facebook to optimize the feed to show users the most pertinent social
objects.
The Virtuous Cycle

In our view, one of the end results of this platform approach is greater engagement for
Facebook, both on its core facebook.com site and also on third-party sites across the
Web. The ratio of daily to monthly active users is one proxy for engagement. On this basis,
57% of global monthly active users were active each day in 2011 (including user
interactions on Facebook through open graph) and this metric has been trending
consistently higher and across geographies for Facebook.
Exhibit 23: Facebook DAU/MAU Ratio, 2009-11
80%
En gag ement (DAU/MAU Ratio )
70.4%
70%
60%
64.3%
57.1%
62.4%
58.5%
53.8%
49.5%
46.8%
46.4%
50%
48.4%
43.6%
42.0%
Asia
ROW
57.2%
53.9%
51.4%
40%
30%
20%
10%
0%
N. America
Europ e
2009
2010
Glob al
2011
With more engagement comes more monetization opportunities, which, in turn, can be
reinvested in more features to drive more user growth. Additionally, in the case of
Facebook APIs, a larger user base attracts more third-party developers to create
applications, which can also grow engagement and generate more user data. All of this
could theoretically create a virtuous cycle and reinforces Facebooks network effect.
Facebook, Inc. (FB)
16
27 June 2012
Exhibit 24: Network Effect in Social Media
More 3rd
Party App
Developers
More User Data
Utility of
Network
Increases
(Metcalfes Law)
Increase
Number of
Users
Invest in More
Features on the
Platform
Drive More
Engagement
Increased
Revenue
Opportunity
Facebook, Inc. (FB)
17
27 June 2012
Facebook User Growth

In light of our view that Facebooks business has significant network effect, we are
confident that the company can continue to increase its user base. In Exhibit 25, looking at
user penetration rates for select a group of countries, we note that in certain geographies
(e.g., Chile, Turkey, and Venezuela), ~85%+ of the Internet population are active monthly
users. In the United States and U.K, the penetration rates are currently around 60%, while
for certain geographies the rates are lower. We note that due to government restrictions,
Internet users in China are not able to access Facebook.
Exhibit 25: Facebook Monthly Active Users (Millions), 1Q12
90%
85% +
85% +
85% +
80%
70%
% Penetration
~60%
~60%
~60%
60%
50%
35%
40%
35%
30%
<=20% <=20% <=20%
20%
10%
~0%
0%
Chile
Turkey Venezuela U.S.
U.K.
India
Brazil Germany Japan
Russia S. Korea China
User Forecast
For our user growth forecast we follow a multistep process:
First, we size the addressable number of Internet/broadband users. For more

developed geographies, namely North America, Europe, and Asia, we only consider
broadband users. For Latin America, the Middle East, and Africa, given a less
developed Internet infrastructure, we use total Internet users as opposed to only
broadband users.
Next, from our addressable user count, we remove countries which are currently not
addressable to Facebook, namely: China, Syria, Iran, and North Korea.
We then calculate Facebooks historical penetration rate within each geography by

combining our addressable user estimates with the reported user stats broken out by
geography from the companys public filings. On a global basis, we estimate that in
2011, Facebooks reported 845 million users represented a 65% penetration of the
addressable market.
Lastly, as shown in Exhibit 26, we assume that for each geography over the next five
years, Facebooks penetration rates rise to ~80%-85%, consistent with the levels found
in todays most highly penetrated countries (Chile, Turkey, and Venezuela).
Facebook, Inc. (FB)
18
27 June 2012
Exhibit 26: CS Est. Facebook MAU Penetration, 2009-2017E

100%
FB Monthly User Penetration (%)
90%
80%
N. America
70%
Europe
60%
Asia*
ROW**
50%
Global***
40%
30%
20%
2009
2010
2011E
2012E
2013E
2014E
2015E
2016E
2017E
Source: Company Data, ITU, Gartner, Credit Suisse Estimates, note: *Asia excludes China. **ROW
excludes Syria and Iran. ***Global excludes China, Syria, and Iran.
In turn, based on our penetration forecasts, we estimate that Facebooks MAUs will grow
from 845 million at year-end 2011 to 1 billion at year-end 2012, and rise at a 8.5% fiveyear CAGR to 1.5 billion MAUs by the end of 2017.
Exhibit 27: CS Est. Facebook MAUs, 2009-2017E
1,600
1.34b
Monthly Active Users (M)
1,400
1.14b
1,200
1,000
600
360m
2009
200
0
69
62
117
112
133
435
ROW
409
Asia
353
279
608m
411
1.52b
324
845m
800
400
1.25b
382
1.01b
1.43b
225
262
301
333
359
212
384
327
383
407
Europe
229
296
356
266
179
201
218
233
245
255
266
N. America
154
2010
2011
2012E
2013E
2014E
2015E
2016E
2017E
138
183
Source: Company data, Credit Suisse estimates
Facebook, Inc. (FB)
19
27 June 2012
Monetization and the Social OS

Some investors may rightly question at this point how Facebook may monetize its
platform? Today, Facebook currently generates revenue from two sources, namely:
Display Advertising: The segment of the online advertising market that Facebook
participates in is known as display advertising. We define display advertising as a form
of online advertising where an advertisers message is shown on a destination
web/mobile web page, and/or embedded within a mobile web app or online video. The
advertiser pays for space to display a marketing message on one or more of the
pages, videos, or impressions.
Payments: Gaming and the purchasing of virtual goods are popular entertainment
mediums on Facebook. Users pay for gaming features or other virtual goods by
purchasing Facebooks virtual currency, known as Facebook Credits. In many cases,
content is provided by third-party developers, with whom Facebook shares 70% of the
revenue with Facebook retaining the remaining 30%.
However, from a bigger picture perspective, we see multiple opportunities for Facebook to
monetize its platform over time. We draw an analogy with Microsofts Windows business
model. In the traditional PC environment, Microsofts Windows operating system was the
underlying, foundational platform. This platform allowed Microsoft to develop first-party
applications (such as Office), while other software providers created third-party
applications. In this case, Microsoft generates revenues from the sale of the OS and first
party apps, but not from third-party apps.
In contrast, Facebook is free to users, as are most first-party applications (e.g., the photo,
messaging, and groups applications) that are core to the platform. Beyond advertising and
payments from social games, we believe that Facebooks platform could also allow the
company to participate in other verticals such as ecommerce and content sharing. (Please
refer to the Exhibit 28.)
Exhibit 28: Dominant Social Media Platform Can Enable Multiple Ways to Monetize
For the purposes of our work, we now detail the outlook for Facebooks known revenue
streams: advertising and payments, while we discuss blue sky opportunities for future
monetization in the valuation discussion of this report.
Facebook, Inc. (FB)
20
27 June 2012
Advertising
Survey Says
We begin our analysis of Facebooks revenue growth with advertising, which accounts for
the lions share of the companys total revenue base (85% of the total in 2011). In order to
assess the potential for this revenue stream, we conducted primary market research,
which includes a survey of 100 Facebook advertising buyers (please see the appendix for
a detailed profile of the respondent pool). Based on this work, we conclude:
Social advertising is still in its infancy.
Marketers primary objective is brand awareness.
The Facebook ad solution is differentiated in its ability to finely target users.
Advertisers satisfaction level is relatively high with Facebook
and they plan to increase their ad spending on Facebook.
(1) Social Advertising Still in Its Infancy

Although Facebook has accepted advertising since its early days, we submit that the
concept of social advertising is still nascent. One testament to this idea is the numerous
number of metrics that are measured by advertisers. As detailed in Exhibit 29, there does
not appear to be any one, singular measure of success for social advertising.
In measuring the success of their campaigns, ad buyers consider many metrics to be
important, as shown in Exhibit 29. In our view, the sheer number of metrics where more
than 80% of respondents said that the metric is important, is a testament to the complex
and ambiguous nature of measuring success with brand/awareness advertising.
Exhibit 29: Buyers Are Focused on Many Success Metrics
Q: Are the following metrics important in determining the success of your advertising on
Facebook? (Charts reflect responses where answer selected was somewhat important, important and very important)
Transaction/ROI m etrics related to conversio n e.g revenue generated
91%
per do llar spen t
Chang es in the inten t to pu rch ase
90%
N um ber o f new fan's sig ned up, or sim ilar m etric
89%
Click through rates resulting in Direct Website Traffic
89%
Total nu mb er of visits to fan page, or sim ilar m etric
88%
Brand awaren ess lift
87%
C lick throug h rates resulting in traffic to Fan Page/Tim elin e
86%
Nu mb er of ad vertising im pression s
74%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Source: Credit Suisse 2012 Facebook Advertising Buyer Survey.
Facebook, Inc. (FB)
21
27 June 2012
(2) Brand Awareness Is the Primary Objective

Next, with no clear cut singular success metric, we examine the objectives of advertisers
who market on Facebook. As shown in Exhibit 30, Facebook advertisers frequently have
many objectives for their campaigns, although creating and increasing brand awareness
tops the list, with 92% of respondents citing this objective, while generating engagement
follows closely at 90%.
Exhibit 30: FB Ad Campaigns Appear to Have Many Objectives
Q: How frequently do your paid facebook advertising campaigns encompass the following
objectives? (Charts reflect responses where answer selected was somewhat frequently, frequently and very frequently)
92%
Create/incr ease awar eness of pr oduct/brand/ser vice
90%
Generate engagement with your end consumer
Drive tr ansactions, similar to search advertising/performance oriented
83%
display advertising
81%
Increase number of fans
75%
Generate future leads
73%
Com plem ent other media buys such as TV, Print, Online Sear ch, Display
70%
Generate other social m edia activity
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Here, we submit that debate over the ROI or conversion potential of Facebook advertising
may be somewhat misplaced. Said another way, not all advertising has the singular focus
of generating immediate revenue. For example, much of the advertising on television or in
print falls into this category, in which the underlying goal of the advertiser is to create
awareness with as many potential customers as possible. While the buyer may elect to
purchase in short-order too, in reality, much of this advertising is spent on the notion that
buying will occur further in the future. Similarly, this type of advertising also lends itself to
situations in which the goal of the brand is to maintain mindshare with current customers.
This is in contrast to performance or transactional advertising, in which the main objective
is to drive traffic, where, within a short time period, a sale or revenue event such as a paid
subscription is consummated. The sale is immediately attributed back to the
advertisement, and therefore a return on investment can be calculated. By and large, this
measurement is straightforward and objective. Much of the online advertising spent in
search falls within this bucket, as search terms serve as a strong signal to advertisers that
a user is seeking to buy something. This is the reason that a majority of the online
advertising spent by ecommerce retailers and online travel agencies falls within this
bucket.
(3) Facebooks Targeting Ability Is Strong

A key point of differentiation in Facebooks advertising solution is the power of its targeting
capability. As shown in Exhibit 31 and Exhibit 32, 87% of respondents highlighted this
targeting capability as an important factor in their decision to advertise with Facebook.
Facebook, Inc. (FB)
22
27 June 2012
Exhibit 31: Targeting Is a Key Factor in Decision to Advertise
Q: In your decision to advertise with Facebook, how important is Facebook's

ability to target advertisements to users based on parameters such as location,
likes interests and topics, demographics, user events, actions, fans and friends
of fans
Not Important, 1%
Neutral, 12%
Important , 31%
Very Important, 56%
Similarly, as we depict in Exhibit 32, this targeting capability is generally perceived as

more effective that what is available from other display advertising players. This is due to
Facebooks bevy of data around individuals from the explicit graph. With this data,
marketers can target users based on many different criteria such as location, age,
occupation, education, interests, marital status, etc.
Exhibit 32: Facebook Targeting Perceived as Superior to Other Channels
Q: Do you believe Facebook's targeting abilities are more effective in helping you reach your
audience as compared to the following players/channels?
70%
63%
60%
57%
55%
% of Respondents
50%
49%
46% 45%
50%
48%
39%
40%
38%
32%
31%
30%
27%
30%
20%
20%
14%
10%
11%
AOL Display
I AC Display
10%
12%
9%
14%
0%
Google Display
Yahoo Display
FB is less effective
About the same
Other Ad
Networks
Other Ad
Exchanges
Demand Side
Platforms
FB is more effective
We also note that Facebook recently released a set of new targeting features known as
the Open Graph Action Targeting Spec, in which advertisers can target users based on
particular actions they performed on the site. For example a user can be targeted based
on listing to a song in an app such as through Spotify, or updating their status with verbs
and objects just drank a cup of coffee, where the verb drank and object coffee are
targeting parameters. While these targeting features are very new, with only 33% of
respondents in our survey indicating that they had used them, the level of receptivity to the
features appears high. As depicted in the bottom right chart in Exhibit 33, when asked if
they believe if these features will eventually lead to an increase in ad spend, 55% of
respondents indicated increase somewhat, while 27% said increase substantially.
Facebook, Inc. (FB)
23
27 June 2012
Exhibit 33: Buyers Also Seem Receptive to Newer Targeting Initiatives

Q: Have you used the Open Graph Action Spec targeting
capability with your Facebook Ads? For example: targeting
individuals whom: indicated they listened to a particular song,
drank a particular soft drink etc.?
Not Sure, 15%
Yes, 33%
Q: Do you believe that the Open Graph Action Spec

Targeting capability, will eventually lead to you
increasing your Facebook ad Spend?
No, 52%
55%
60%
50%
40%
30%
27%
20%
12%
6%
10%
0%
In crease
substantially
Increase somewhat
No
Not S ure
Over and above targeting capabilities, we believe a unique and powerful proposition that
Facebook offers is the capability to enhance advertising with social context. In this regard,
advertisers are able to highlight alongside their ads if your friends have liked the business
or brand. This is important as it is generally accepted that endorsements from ones strong
ties have a greater impact on ones purchase decisions than a strangers endorsements,
and the perceived credibility of an ad/business is greater if someone in your immediate
network vouches for it. Effectively, Facebook, with social ads, is delivering word of mouth,
at scale.
According to Facebooks analysis, ads of this nature demonstrated a greater than 50%
increase in ad recall versus ads without social context. On a similar note, third-party data
indicates that click through rates have increased 50% over the past 12 months, in part due
to socially-enabled ads. Despite the potential benefits, we estimate that only
~20% of ads at the moment have a social component. In turn, this implies that there may
be further upside to Facebook advertising revenue as social ads grow as a percentage of
the total and assuming these ad continue to deliver better results for marketers.
(4) Advertiser Satisfaction Is Relatively High with FB

When asked to rate the degree to which Facebook is successful in driving key
performance metrics, the results were largely positive. Notably, on average 35-40% were
satisfied/very satisfied, while ~40% of respondents were somewhat satisfied with the
Facebook advertising solution.
Facebook, Inc. (FB)
24
27 June 2012
Exhibit 34: Varying Degrees of Satisfaction Exist
Q: Are you satisfied with Facebook advertising's ability to drive the following?
19%
Brand awareness lift
48%
24%
28%
Changes in the intent to purchase

Transaction/ROI metrics related to conversion e.g revenue generated
per dollar spent
51%
32%
17%
42%
Num ber of visits to fan page, or sim ilar m etric
16%
15%
42%
Click through r ates to product/brand/service Fan Page/Timeline
12%
Click through rates to product/brand/service website
Number of impressions
0%
Not Satisfied
20%
30%
9%
29%
6%
28%
38%
10%
7%
34%
46%
10%
5%
35%
53%
20%
4%
21%
42%
Number of new fan's signed up, or sim ilar m etric
9%
6%
36%
40%
50%
Somew hat Satisfied
60%
70%
Satisfied
16%
80%
90%
100%
Very Satis fied
(5) Ad Spending on FB Expected to Increase

In addition, based on our survey, the good news is that 56% of respondents indicated they
would increase their spend on Facebook advertising over the next 12 months. As shown in
Exhibit 35, on a weighted-average basis, this increase equated to 20%. We note however,
that our survey did not include advertisers that do not currently advertise with Facebook.
Exhibit 35: Respondents % Budget Change Over Next 12 Months
35%
32%
28%
30%
% of Total
25%
20%
15%
13%
10%
10%
9%
4%
5%
1%
0%
Decrease
Weighted Ave
Decrease = 10%*
No Change
Increase 1-10% Increase 11-25% Increase 26-50%
Increase 50100%
> 100% Increase
Weighted Ave
Increase = 20%
Source: Credit Suisse 2012 Facebook Advertising Buyer Survey *Note: 2 out of the 13 respondents said
their spend would decrease by 51-100%, excluding these, the weighted average decrease equates to -7%.
For buyers that indicated that they would increase their spend, 30% indicated that the
increase would be funded by shifting dollars from other channels, 27% indicated the
budget would be incremental, while the remaining 43% said that the increase would be
funded by both incremental budget and other channels. In terms of which channels
budgets would be moved from, as shown in Exhibit 36, respondents indicated that the
shifts would be fairly broad-based. Of particular note on the offline side, 44% of
respondents indicated a shift from print advertising, and for online, 37% and 41%
respectively, indicated a shift from online portals and ad networks/exchanges.
Facebook, Inc. (FB)
25
27 June 2012
Exhibit 36: Budgets Increases Both Incremental and From Other Channels
Q: To accommodate this increase in spend on Facebook, please select how you will fund
your incremental Facebook spend.
Both options are
applicable
43%
Move budget from

other advertising
channels
30%
Total budget size

will increase
27%
From which Channel?

50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
44%
41%
37%
32%
32%
24%
TV
Print
Radio
Online Paid Search Online Portal such

as a Yahoo and
AOL
Other online
display (ad
networks & ad
exchanges)
Advertising Revenue Forecast

Net net, our survey suggests that Facebook should be able to sustain growth in its
advertising revenue stream. To first size the market, we estimate that the global
advertising market in 2012 will equate to $531 billion, with $82 billion being spent online.
However, as we outlined earlier, Facebooks advertising falls within the display advertising
market, which we forecast will be $24 billion for the year.
Exhibit 37: CS Est. Facebook TAM, 2012E
$600
$500
$'s in Bils.
$400
$449
$300
$531
$200
$100
$58
$82
$24
$0
Global Advertising
Global Offine
Advertising
Global Online
Advertising
Global Non-Display Global Online

Online Advertising Display Advertising
Source: Company data, Credit Suisse estimates, Magna Global.
Over the next five years, as highlighted in Exhibit 38, we project that the global advertising
market will grow at a 4.4% CAGR to $660 billion by 2017. As for the online portion, we
estimate that the online advertising market will grow by at an 11% five-year CAGR to $138
billion by 2017, and that the display advertising market will grow in-line with the total online
market and be $52 billion by 2017.
Facebook, Inc. (FB)
26
27 June 2012
Exhibit 38: CS Est. Facebook TAM, 2009-2017E

$700
$600
$'s in Bils.
$500
Total
Advertising
$400
$300
$200
$100
Online
Adv.
$0
Online
Display
2009
2010
2011E
2012E
2013E
2014E
2015E
2016E
2017E
Source: Company data, Credit Suisse estimates, Magna Global
From a modeling standpoint, we project Facebooks advertising revenue using a

bottoms-up approach, based on the following underlying business drivers:
Average Monthly Active Users: Refers to the average number of monthly active
users on Facebook we forecast previously. We project a five-year CAGR of 9.6%
through 2017.
Daily Advertising Impressions Per MAU: Refers to the average number of

advertising impressions each monthly active user is exposed to per day. This metric is
a function of the number of pages viewed by each MAU, and the number of
advertisements displayed per page. We anticipate that user engagement (page views)
will continue to grow moderately, and in turn estimate that on average each MAU will
be displayed 61 impressions per day in 2012 and that this figure will rise at a 6% fiveyear CAGR to 81 impressions per day by 2017.
Average Price per 000 Ads: Commonly referred to as CPM (Cost per 1,000
Impressions). We anticipate that over time, given improvements in targeting/relevancy,
measurement and analytics, and ad-buying tools, Facebook should be able to drive
pricing up moderately. In turn, we forecast that CPM will rise from $0.20 in 2012 to
$0.27 by 2017, a 7% five-year CAGR.
Exhibit 39: CS Est. Facebook Advertising Drivers and Revenue Forecast
Avg. MAU's
x Daily Ad Impressions per MAU
x 365 Days
/ 1,000
= Annual Ad Impressions ('000's)
x Avg. Price per '000 Ads
= Advertising Revenue ( Mils.)
Y/Y % Change
Avg. MAU's
Daily Ad Impressions per MAU
Annual Ad Impressions ('000's)
Avg. Price per '000 Ads
Advertising Revenue ( Mils.)
2010
487
62
365
1,000
11,000
$0.17
$1,869
2011
736
58
365
1,000
15,500
$0.20
$3,154
2012E
934
61
365
1,000
20,645
$0.19
$3,936
2013E
1,074
67
365
1,000
26,116
$0.20
$5,259
2014E
1,193
70
365
1,000
30,445
$0.22
$6,706
2015E
1,294
73
365
1,000
34,684
$0.24
$8,246
2016E
1,387
77
365
1,000
39,044
$0.25
$9,858
2017E
1,475
81
365
1,000
43,591
$0.27
$11,621
51%
-7%
41%
20%
69%
27%
5%
33%
-6%
25%
15%
10%
27%
6%
34%
11%
5%
17%
9%
28%
8%
5%
14%
8%
23%
7%
5%
13%
6%
20%
CAGR
12-'17
9.6%
6.0%
0.0%
0.0%
16.1%
6.9%
24.2%
User Growth
6%
5%
12%
6%
18%
From higher
engagement
From
improved
relevancy
Facebook, Inc. (FB)
27
27 June 2012
Putting together these drivers, we project that Facebooks advertising revenue for 2012
will be $3.94 billion and rise to $11.62 billion by 2017, a 24% five-year CAGR. Looking at
our revenue build another way, as shown in Exhibit 40, we project for 2012 that Facebook
will generate $0.35 in advertising revenue per MAU per month, and that this figure will rise
at a 13.3% five-year CAGR to $0.66 by 2017.
Exhibit 40: CS Est. Facebook Advertising Revenue ForecastImplied Rev. per MAU per Month
2012E 2013E 2014E
2015E
2016E
2017E
CAGR
12-'17
Advertising
Average MAU's
x Advertising per MAU per Month
x Months per Period
= Advertising Revenue
487
736
934
1,074 1,193
$0.32 $0.36 $0.35 $0.41 $0.47
12
12
12
12
12
$1,869 $3,154 $3,936 $5,259 $6,706
1,294
$0.53
12
$8,246
1,387
$0.59
12
$9,858
1,475
$0.66
12
$11,621
9.6%
13.3%
0.0%
24.2%
Y/Y % Growth
Average MAU's
Advertising per MAU per Month
Advertising Revenue
95.7% 51.2%
25.0% 11.6%
144.6% 68.8%
8.5%
13.3%
23.0%
7.2%
11.5%
19.5%
6.3%
10.9%
17.9%
2010
2011
26.9%
-1.6%
24.8%
15.0%
16.2%
33.6%
11.0%
14.9%
27.5%
This in turn implies that Facebooks share of the Online Display market will rise from
11.4% in 2012 to 22% by 2017. However, as a proportion of the total online advertising
market, our projections imply that Facebook will still however only hold 8.4% of the market
by 2017.
Exhibit 41: Facebook Advertising Market Share, 2009-2017E
25%
22.2%
20.9%
Online
Display
19.4%
FB Global Market Share
20%
17.5%
15.2%
15%
11.4%
10%
12.7%
7.4%
5.7%
5%
6.6%
7.3%
7.9%
8.4%
Online Adv.
4.3%
3.7%
4.8%
0.7%
0.9%
1.1%
1.4%
1.6%
1.8%
0.6%
2011E
2012E
2013E
2014E
2015E
2016E
2017E
2.9%
1.4%
0.4%
0%
2009
2010
Total
Advertising
Facebook, Inc. (FB)
28
27 June 2012
Payments
To forecast Facebooks payments business related to social games, we follow a similar
bottoms approach based on the following business drivers:
Average Monthly Active Users: We use the same monthly active user count as our
advertising revenue forecast.
Percentage of Users Who Purchased Through Facebook: This refers to the

proportion of users in a given year that purchased items using Facebook credits.
Based on company disclosures, 1% and 2% purchased Credits in 2010 and 2011
respectively. For forecasting purposes, we assume this metric is flat in 2012, and rises
at 100 bps per year from 2013 through 2017. In turn, this implies that 19 million users
will purchase Facebook Credits in 2012, and that this figure will rise at a 40% five-year
CAGR to 104 million by 2017.
Gross Payments per Payment User: This variable equates to the annual amount of
purchases per user. We note that in 2012 this metric will be artificially high as it will
include one extra month of payment revenue recognition in 3Q12. Given substantial
growth in the number of new payments users we forecast, we anticipate that this metric
will normalize at a lower average as newer users are likely to be less enthusiastic than
old ones. Therefore, we project that gross payments per payments user will decline
from $160 in 2012, to $88 by 2017, an -11% compound annual decease.
By multiplying the number of users who purchased credits through Facebook with the
gross payments per payment user, we derive total transaction volume. Total
transaction volume refers to the total value of items paid for with Facebook credits in a
given year.
Facebook Share Percentage: We however note that Facebook only books its portion
of the total transaction volume as revenue. At this stage, ~70% of the transaction
volume is paid to third-party developers that use the virtual currency (e.g., Zygna),
while Facebook retains ~30% as revenue. In turn, we model that Facebooks share of
30% will hold through 2017.
Exhibit 42: Facebook Payments Revenue, 2010-2017E
Avg. MAU's
x % Users Who Purchased Through FB
= Users Who Purchased Through FB
x Gross Payments per Payment User
= Total FB Transaction Volume
x Facebook Share (%)
= Payments & Other Fees Revenue
memo: Paid Out to Developers
Y/Y % Change
Avg. MAU's
% Users Who Purchased Through FB
Users Who Purchased Through FB
Gross Payments per Payment User
Total FB Transaction Volume
Facebook Share (%)
Payments & Other Fees Revenue
memo: Paid Out to Developers
2010E
487
1.0%
5
$70
$352
30%
$106
$246
2011E
736
2.0%
15
$131
$1,965
28.3%
$557
$1,408
2012E
934
2.0%
19
$160
$3,038
30%
$911
$2,127
2013E
1,074
3.0%
33
$122
$3,989
30%
$1,197
$2,793
2014E
1,193
4.0%
48
$104
$5,013
30%
$1,504
$3,509
2015E
1,294
5.0%
65
$95
$6,184
30%
$1,855
$4,329
2016E
1,387
6.0%
84
$90
$7,524
30%
$2,257
$5,267
2017E
1,475
7.0%
104
$88
$9,095
30%
$2,729
$6,367
-----------------
51.2%
98.4%
200.0%
86.3%
458.8%
-5.5%
428.0%
472.0%
26.9%
0.0%
26.9%
21.9%
54.6%
5.8%
63.6%
51.0%
15.0%
49.1%
71.5%
-23.4%
31.3%
0.0%
31.3%
31.3%
11.0%
32.9%
47.6%
-14.9%
25.7%
0.0%
25.7%
25.7%
8.5%
24.8%
35.4%
-8.9%
23.4%
0.0%
23.4%
23.4%
7.2%
19.9%
28.5%
-5.3%
21.7%
0.0%
21.7%
21.7%
CAGR
12-'17
9.6%
28.1%
40.4%
-11.3%
24.5%
0.0%
24.5%
24.5%
6.3%
16.6%
23.9%
-2.5%
20.9%
0.0%
20.9%
20.9%
Facebook, Inc. (FB)
29
27 June 2012
Putting together these drivers, we project that Facebooks payments revenue for 2012 will
be $911 million, and could rise to $2.73 billion by 2017, a 24.5% five-year CAGR. Based
on our projection for 18-21% growth rates in the virtual goods market, we forecast that
Facebooks share will rise from ~30% in 2012 to 39% by 2017.
FB Share of Market for Virtual Goods
Exhibit 43: Facebook Share of Virtual Goods Market, 2011E-2017E

45%
38.9%
40%
35%
32.2%
34.9%
29.6%
30%
25%
33.4%
36.6%
23.2%
20%
15%
10%
5%
0%
2011E
2012E
2013E
2014E
2015E
2016E
2017E
Facebook, Inc. (FB)
30
27 June 2012
Financial Forecasts
Total Revenue
Combining our revenue estimates for Facebooks advertising and payments businesses,
we forecast total revenue of $4.85 billion in 2012, up 31% year over year. We estimate
that over the next five years, total revenue will grow at a 24.2% compounded annual
growth rate, equating to $14.35 billion by 2017.
Exhibit 44: CS Est. Facebook Revenue Forecast, 2009-2017E
$16,000
$14,349
$14,000
$12,115
$12,000
$10,102
Revenue $M
$10,000
$8,210
$8,000
$6,456
$6,000
$4,848
$3,711
$4,000
$1,974
$2,000
$777
$0
2009
2010
2011
2012E 2013E 2014E 2015E 2016E 2017E
Expense Forecast
Facebook allocates its operating expenses across four line items, as outlined in Exhibit 45.
We note that expenses associated with employee compensation and benefits compose a
significant share of each item.
Exhibit 45: Facebook Expense Line Items
Expense
Components
Cost of Revenue
Expenses associated with delivery and distribution of products: such as data

center operations, energy and bandwidth, support and maintenance; includes
all employee salaries and benefits associated with performing these functions.
Embedded within this line are all credit card and transaction fees.
Marketing & Sales
Primarily consists of salaries and benefits for employees in sales, sales

support, marketing, business development and customer services functions.
Marketing and promotional expenditures are also allocated to this line.
Research &
Development
Primarily consists of salaries and benefits for employees on engineering and

technical teams who are responsible for building new products and improving
existing ones.
General &
Administrative
Primarily consists of salaries and benefits for executives as well employees

within finance, legal and human resource functions. Expenses associated with
outside consulting, legal, accounting, facilities and 3rd party support costs are
allocated to this line.
Facebook, Inc. (FB)
31
27 June 2012
EBIT
In terms of forecasting opex on a going forward basis we assume that for 2012, across the
board, expenses as a percentage of revenue for each line item will be up year on year as
the company continues to invest to grow its business. On this basis, for 2012 we model a
non-GAAP EBIT margin of 42.4% versus 53.2% in 2011. Beyond 2012, we hold our
expense line forecasts as a percent of revenue at roughly flat, as we believe that enough
leverage exists in the model to maintain room for continued investment. For example in
2013, we model operating expenses x-SBC of $3.69 billion versus $2.8 billion in 2012, a
32% increase.
Exhibit 46: Facebook Operating Expenses x-SBC, 2010-2017E
30%
% of Revenue
25%
27%
27%
14%
25%
14%
9%
9%
26%
27%
27%
27%
14%
14%
14%
14% Marketing &
9%
9%
9%
Cost of Rev.
23%
20%
15%
9%
10%
7%
10%
7%
6%
6%
7%
7%
7%
7%
7%
2010
5%
2011
2012E
2013E
2014E
2015E
2016E
Sales
9%
7%
R&D
G&A
0%
2017E
In turn, as shown in Exhibit 47 we forecast that non-GAAP EBIT margin will equate to
~42-44% on a forward-looking basis, with non-GAAP EBIT rising from $2.1 billion in 2012
to $6.2 in 2017, a 25% five-year CAGR.
Exhibit 47: Facebook Non-GAAP EBIT, 2010-2017E
2010
Non-GAAP EBIT Calculation
GAAP Operating Income
+ Total SBC
+ Other
= Non-GAAP EBIT
Non-GAAP EBIT Margin
Y/Y % Growth
2011
2012E
2013E
2014E
2015E
2016E
2017E
$1,033
$20
$0
$1,053
53.3%
264.4%
$1,757
$217
$0
$1,974
53.2%
87.5%
$478
$578
$1,000
$2,055
42.4%
4.1%
$1,950
$820
$0
$2,769
42.9%
34.7%
$2,529
$1,043
$0
$3,571
43.5%
29.0%
$3,111
$1,283
$0
$4,394
43.5%
23.0%
$3,731
$1,539
$0
$5,270
43.5%
19.9%
$4,420
$1,822
$0
$6,242
43.5%
18.4%
CAGR
12-'17
56.1%
25.8%
-100.0%
24.9%
Source: Company data, Credit Suisse estimates
To put our Facebook margin estimates in context, we compare it with Google, which within
our coverage universe we believe is the most similar in terms of cost structure. In our
opinion, the best margin metric for an apples to apples comparison is Googles non-GAAP
EBIT margin as a percentage of net revenue, which only considers revenue that Google
ultimately keeps versus revenue which is paid out to third parties such as publishers and
distribution partners. On the heels of a large year for reinvesting in the business, where
headcount increased by 33%, in 2011, Googles non-GAAP EBIT margin as a % of net
revenue was 49% versus 53.4% in 2010. On a going-forward basis, we model this margin
for Google at roughly flat around 48% versus our 42-44% long-term estimate for Facebook.
Facebook, Inc. (FB)
32
27 June 2012
Exhibit 48: Facebook non-GAAP EBIT and Margin, 2010-2017E

53%
$6,242
53%
$6,000
Non-GAAP EBIT
42%
43%
44%
$5,000
44%
60%
50%
$5,270
44%
44%
$4,394
40%
$3,571
$4,000
30%
$2,769
$3,000
$1,974
$2,055
20%
$2,000
$1,053
$7,000
10%
$1,000
$0
0%
2010
2011
2012E
2013E
2014E
2015E
2016E
2017E
Free Cash Flow

In terms of free cash flow, we project that in 2012 Facebook will generate positive FCF of
$486 million versus $943 million in 2011 (excluding PP&E purchased under capital
leases). On this basis, we forecast that FCF will rise at a 56% compound annual rate over
the coming five years, totaling $964 million in 2013 and approaching $4.48 billion by 2017,
driven by our revenue forecast and stable margins. Beyond these operating factors, our
FCF projections reflect capex of $1.65 billion for 2012, with a 4% five-year CAGR through
2017. Our FCF calculation methodology is consistent with how we calculate the metric for
all companies within our coverage universe. However, as shown in Exhibit 49, Facebook
calculates FCF after PP&E acquired under capital leases.
Exhibit 49: Facebook Free Cash Flow Forecast, 2011-2017E
2011
FCF Calculation
Net Cash Provided by Operating Activities
- Purchases of PP&E
- Property & Equipment Acquired Under Capital Leases
= FCF (FB Definition)
+ Property & Equipment Acquired Under Capital Leases
= Traditional FCF
2012E
$1,549 $2,134
($606) ($1,648)
($473) ($152)
$470
$334
$473
$152
$943
$486
2013E
2014E
2015E
2016E
2017E
$2,604
($1,640)
($160)
$804
$160
$964
$3,407
($1,722)
($168)
$1,517
$168
$1,684
$4,275
($1,809)
($176)
$2,290
$176
$2,466
$5,356
($1,899)
($185)
$3,272
$185
$3,457
$6,476
($1,994)
($194)
$4,288
$194
$4,482
Facebook, Inc. (FB)
33
27 June 2012
Valuation
Framework
Now that we developed financial forecasts for Facebooks base business, in this section
we lay out our valuation analysis, based on the framework depicted in Exhibit 50.
Exhibit 50: Facebook Value Framework
DCF Derived NPV For Base Business

+ Net Cash
+ NPV of NOL
= Equity Value for Base Business
+ NPV of Ad Network Opportunity
+ NPV of Mobile Advertising Opportunity
+ NPV of Expanded Payments Opportunity
= Equity Value For Base Business + Future Opportunities
In terms of valuation technique, we are traditionalists and rely on discounted cash flow
(DCF) analysis. While we acknowledge some of the shortcomings of DCF (reliability of
long-term forecasts, sensitivity to WACC and terminal growth assumptions), we generally
prefer measures of intrinsic value, as opposed to relative value, and ones that capture the
long-term evolution of business models. We apply the same WACC and terminal growth
assumptions in our valuation of the base business and incremental opportunities.
WACC
Calculating a weighted average cost of capital for Facebook is challenging, owing to the
limited trading history of the company. For our DCF model, we utilize a discount rate of
10%, which assumes:
A risk-free rate of 2%;
An equity-risk premium of 6.5%;
A beta of 1.2, which represents the average beta of Facebooks peers.
Terminal Growth
We utilize a 3% terminal growth rate in unlevered free cash flow. This assumes perpetual
growth is similar to long-term, nominal economic growth and is consistent with our
assumptions for our universe of Internet stocks.
Blue Sky Opportunities

Facebook is currently trading at an EV/EBITDA multiple of roughly 23 or a P/E multiple of
53, based on our 2013 forecasts. To us, this valuation clearly captures the expectation that
Facebook will be able to find other ways to monetize its platform beyond first-party display
advertising and payments related to its social games. While we consider monetization for
Facebook as fairly open-ended, we can envision three opportunities:
Mobile advertising
Facebook, Inc. (FB)
34
27 June 2012
Third-party ad network
Expanding payments beyond social games
(1) Mobile Monetization

While mobile is clearly a risk for Facebook, it is also a large opportunity too. As shown in
Exhibit 51, in 1Q12, 54% or 488 million of Facebooks 901 MAUs accessed Facebook
from a mobile device. Based on our calculations, we estimate that 9% of total MAUs or 83
million were mobile only users, and the remaining 45% or 405 million accessed Facebook
from both a mobile device and desktop.
Exhibit 51: Facebook Mobile MAUs vs. Web Only, 1Q12
46% of
To tal
1,000
900
Mix of F B MAU's (1Q12)
800
700
413
600
500
45% of
Total
9% of
Total
54% of
Total
901
83
400
300
488
405
200
100
0
Implied Mobile + Web Mobile ONLY MAU's Total Mobile MAU's

Users MAU's
Web Only
Total MAU's
Facebooks challenge has been that it has historically not monetized mobile usage. The
company debuted its first mobile advertising offering at the end of February 2012, and up
until recently this offering had not been rolled out at scale. On this basis, our total
company financial estimates laid out previously do include embedded forecasts for
Facebooks mobile advertising opportunity. We forecast this option separately, as shown
in Exhibit 52, using the following methodology:
First, we assume that the ratio of Mobile MAUs to total MAUs continues to rise at a
similar trajectory, from 57% in 2012 to 93% by 2016. This implies that Mobile MAUs will
rise from 533 million in 2012 to 1.36 billion by 2017, a 21% five-year CAGR.
In 2012, we assume that each Mobile MAU is exposed to four add impressions per
day. This compares to the 61 average daily ad impression exposures we forecast in
the year for desktop MAUs. Given increased levels of mobile engagement and
innovation in terms of mobile ad-units, we estimate that Daily Ad Impressions per
Mobile MAU rise at a 44% five-year CAGR to 25 by 2017; this compares with our
estimate of 81 ad impressions per desktop MAU for 2017.
For pricing, in 2012, we assume a $0.06 CPM versus $0.20 for desktop. We believe
that as mobile commerce and the mobile economy begin to mature, the gap in CPM
will close. Therefore, we forecast that Facebooks mobile CPM could rise at a 30%
five-year CAGR to $0.21 by 2017, which compares with the $0.27 CPM we forecast for
desktop in 2017.
Facebook, Inc. (FB)
35
27 June 2012
Combining these variables, we estimate $44.5 million in mobile advertising revenue

within 2012, which based on our assumptions rises to $2.66 billion by 2017, a
120%-plus five-year CAGR.
To project potential EBIT, on the basis that not all operating costs associated with the
opportunity are incremental, we assume a 60% non-GAAP EBIT margin.
Exhibit 52: Facebook Mobile Advertising Opportunity, 2012-2017E
Total Avg. MAU's

x Mobile MAU/Total MAU Ratio (%)
= Mobile Monthly Active Users
x Daily Ad Impressions per Avg. Monetized MAU
x Days per Period
/ 1,000
= Total Impressions (Bils.)
x Avg. Price per '000 Ads (Mobile)
= Mobile Advertising
x Non-GAAP EBIT Margin
= Mobile Advertising Non-GAAP EBIT
2012E
934
57%
533
4
365
1,000
778
$0.06
$44.5
60.0%
$26.7
2013E 2014E 2015E

2016E
2017E
1,074 1,193
1,294
1,387
1,475
66%
74%
81%
88%
93%
712
882
1,053
1,215
1,366
8
12
16
20
25
365
365
365
365
365
1,000 1,000
1,000
1,000
1,000
2,078 3,861
6,151
8,870
12,461
$0.08 $0.11
$0.14
$0.18
$0.21
$167.4 $425.3 $877.4 $1,567.6 $2,657.5
60.0% 60.0% 60.0%
60.0%
60.0%
$100.4 $255.2 $526.4 $940.6 $1,594.5
Y/Y % Growth
Mobile-ONLY /MAU Ratio (%)
Daily Ad Impressions per Avg. Monetized MAU
Days per Period
Total Impressions (Bils.)
Avg. Price per '000 Ads (Mobile)
Mobile Advertising
Mobile Advertising Non-GAAP EBIT
55.3%
100.0%
0.0%
210.6%
43.0%
344.2%
37.9%
512.6%
33.5%
100.0%
0.0%
167.1%
40.8%
276.1%
0.0%
276.1%
FB Share of Mobile Advertising

Facebook Mobile Advertising
/ Global Online Mobile Display Advertising
= FB Market Share
$44
$1,952
2.3%
$167
$425
$2,679 $3,630
6.2% 11.7%
23.9% 19.5%
50.0% 33.3%
0.0%
0.0%
85.8% 59.3%
36.7% 29.5%
154.1% 106.3%
0.0%
0.0%
154.1% 106.3%
$877
$4,457
19.7%
15.4%
25.0%
0.0%
44.2%
23.9%
78.7%
0.0%
78.7%
12.4%
25.0%
0.0%
40.5%
20.7%
69.5%
0.0%
69.5%
$1,568
$5,271
29.7%
$2,657
$6,256
42.5%
CAGR
12-'17
9.6%
10.2%
20.7%
44.3%
0.0%
0.0%
74.1%
30.1%
126.6%
0.0%
126.6%
126.6%
26.2%
79.5%
We estimate the net present value of the mobile advertising opportunity by developing and
discounting the cash flow estimates generated from our EBIT projections. In terms of key
assumptions, we assume a tax rate in each year that is consistent with our company-wide
model, a 10% discount rate, and a 3% perpetual growth rate. Based on these assumptions
we estimate Facebooks mobile advertising opportunity to be worth $12.3 billion in
enterprise value or $4.49 per share.
Facebook, Inc. (FB)
36
27 June 2012
Exhibit 53: NPV of Facebook Mobile Advertising Opportunity
2012E
NPV of Mobile Advertising Opportunity
Facebook Global Mobile Revenues
x EBIT Margin
= Global Mobile EBIT
x (1-Tax Rate)
= After Tax EBIT
x Discount Factor
= Present Value
1
/ (Discount Rate
- Perpetuity Growth)
= Terminal UFCF Multiple
x Terminal UFCF
= Terminal Value
x Discount Factor
= PV of Terminal Value
+ Sum of Present Values
= Enterprise Value
/ Shares Outstanding
= Per Share Impact
2013E
2014E
2015E
2016E
2017E
$44
60.0%
$27
59%
$16
0.91
$14
$167
60.0%
$100
61%
$61
0.83
$51
$425
60.0%
$255
63%
$161
0.76
$122
$877
60.0%
$526
65%
$342
0.70
$238
$1,568
60.0%
$941
67%
$630
0.64
$400
$2,657
60.0%
$1,594
69%
$1,100
0.58
$638
1
10%
3%
16.4x
$1,138
$18,691
0.58
$10,838
$1,464
$12,302
2742
$4.49
(2) Theoretical Ad Network Opportunity

With the continued adoption of Facebooks Open Graph by third-party sites across the
Web, we believe that the company is positioned to develop its own ad network at some
point in time. In this case, a third party website (e.g., the New York Times) would provide
Facebook with ad inventory on its sites through Facebooks ad network platform. As we
highlighted in our report, Web 2.012: Tectonic Shifts in Online Display Advertising, dated
February 2012, we estimate that in 2012 ~75% of desktop display advertising impressions
will be sold through the indirect channel. Indirect inventory typically comes in two forms:
(1) for publishers that have a sales force, it is the proportion of inventory that they are
unable to sell directly to advertisers, and therefore liquidate through third-party
intermediaries; (2) for publishers that do not have a sales force, all inventory would
typically be sold through the indirect channel.
In Exhibit 54, we lay out the basic display advertising supply chain, with the shaded grey
areas representing parts of the supply chain in display in which Facebook already has
and/or could easily develop its capabilities. In our opinion, Facebook, by virtue of traffic
and user data, has many of the key pieces to disrupt the indirect display value chain. A
key differentiator is the richness of a social networks user data and the potential for
socially-enhanced ads. However, as we contemplate this opportunity, we note that an area
of sensitivity is user privacy. Specifically, some users may not be receptive to Facebook
advertisements following them around the Web.
Facebook, Inc. (FB)
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27 June 2012
Exhibit 54: Facebook Potential Capability Across Display Ad Ecosystem
Core Display Advertising Value Chain
Information
& Content
Ad Network
Advertiser
Supply Side
Platform
Ad Agency
Demand Side
Platform
Publisher
User
Ad
Exchange
Data Exchanges & DMPS

Data Suppliers
Potential Disruption
Eyeballs/Clicks/Actions
Behavioral
Ad $ s
Re-targeting
Search
Offline to
Online
Hybrid
To forecast this opportunity, as detailed in Exhibit 55, we use the following approach:
We begin by sizing and forecasting the total indirect online display advertising market.
We estimate that on a global basis, this market will be $5.4 billion in 2012, and could
rise at a 23.5% five-year CAGR to $15.7 billion by 2017.
Next, we estimate gross ad network revenue by assuming that Facebook will be able to
gain 5% share of the market per year.
In general, within the indirect display segment, the network/exchanges keep 30% of the
gross revenue, with the remaining portion paid out to publishers in exchange for
supplying the inventory, known as traffic acquisition costs (TAC). By deducting the TAC
from gross revenue, we derive net ad network revenue. Based on our estimates, we
project net ad network revenue of $82 million in 2012, and assuming our share
estimates are correct, this figure could rise to $1.4 billion by 2017, a 77% five-year
CAGR.
Lastly, we apply an EBIT margin to net revenue of 75%, which is above our blended
margin estimate, as we believe the ad network will leverage much of the companys
existing infrastructure.
Facebook, Inc. (FB)
38
27 June 2012
Exhibit 55: Facebook Ad Network Opportunity, 2012-2017E
2012E
Ad Network
Total U.S. Indirect / Non-Gaurenteed Online Display Advertising
- U.S. Indirect Display Market - Mobile
= U.S. Indirect/Non-Gaurenteed Online Display Adv. X-Mobile
/ % US
= Global Indirect/Non-Gaurenteed Online Display Adv. X-Mobile
x Facebook Share
= Facebook Gross Ad Network Revenue
x (1-Traffic Acquisition Cost)
= Facebook Net Ad Network Revenue
x EBIT % of Net Revenue
= FB Ad Network Non-GAAP EBIT
memo: Non-GAAP EBIT Margin % of Gross Revenue
2013E
2014E
2015E
2016E
2017E
$4,946
$663
$4,284
78.3%
$5,471
5%
$274
30%
$82
75%
$62
22.5%
$5,746
$853
$4,893
71.2%
$6,873
10%
$687
30%
$206
75%
$155
22.5%
$6,630 $7,603 $8,711

$1,031 $1,186 $1,344
$5,599 $6,417 $7,366
64.5% 61.6%
56.2%
$8,686 $10,410 $13,117
15%
20%
25%
$1,303 $2,082 $3,279
30%
30%
30%
$391
$625
$984
75%
75%
75%
$293
$468
$738
22.5% 22.5%
22.5%
$9,997
$1,525
$8,472
53.9%
$15,716
30%
$4,715
30%
$1,414
75%
$1,061
22.5%
CAGR
12-'17
15.1%
18.1%
14.6%
-7.2%
23.5%
43.1%
76.7%
0.0%
76.7%
0.0%
76.7%
To ascribe a value to Facebooks advertising network opportunity in Exhibit 56, we

estimate the net present value of the opportunity by developing and discounting our cash
flow estimates generated from our EBIT projections. In terms of key assumptions, we
assume a tax rate in each year that is consistent with our company-wide model, a 10%
discount rate, and 3% perpetual growth rate. Based on these assumptions, we estimate
Facebooks advertising network opportunity to be worth $8.4 billion in enterprise value or
$3.07 per share.
Exhibit 56: NPV of Facebook Advertising Network Opportunity
2012E
NPV of Ad Network Opportunity
Facebook Ad Network Gross Revenues
x EBIT Margin
= Global Ad Network Non-GAAP EBIT
x (1-Tax Rate)
= After Tax EBIT
x Discount Factor
= Present Value
1
/ (Discount Rate
x Terminal UFCF
= Terminal Value
x Discount Factor
= Enterprise Value
= Per Share Impact
2013E
2014E
2015E
2016E
2017E
$274
22.5%
$62
59.0%
$36
0.91
$33
$687 $1,303
22.5% 22.5%
$155
$293
61.0% 63.0%
$94
$185
0.83
0.76
$79
$141
$2,082
22.5%
$468
65.0%
$305
0.70
$212
$3,279
22.5%
$738
67.0%
$494
0.64
$314
$4,715
22.5%
$1,061
69.0%
$732
0.58
$424
1
10%
3%
16.4x
$757
$12,436
0.58
$7,211
$1,203
$8,414
2741.6
$3.07
Facebook, Inc. (FB)
39
27 June 2012
(3) Theoretical Expanded Payments Opportunity

We believe that an opportunity exists for Facebook to expand its payments business
beyond social games and virtual goods. As one of many hypothetical examples, we do not
believe it is unrealistic for Facebook to help drive digital media sales for third parties.
Using a framework that is consistent with our financial forecasts for the payments
business, in Exhibit 57, we outline a hypothetical case for which the payments business is
able to expand its scope with moderate success. Specifically, we assume:
In 2012 that 1% of MAUs will enact purchases through this incremental channel, and
that this figure will rise by 100 bps per year through 2017.
Gross payments per payment user is flat at $100.
Facebooks share equates to 20% versus the 30% we forecast for the virtual goods
business. We use a lower commission rate, as it is our view that a 30% commission is
not sustainable for many other categories.
Transaction processing expenses associated with debit, credit, and PayPal equate to
2% transaction volume.
A non-GAAP EBIT margin of 70%, given what we believe, there is substantial

operating leverage in the payment infrastructure.
Based on these assumptions, we estimate that the incremental payments opportunity

could generate $131 million in EBIT this year, and that this figure could rise to $1.24
billion by 2017, a 57% five-year CAGR.
Exhibit 57: Facebook Expanded Payments Opportunity, 2012-2017E
Avg. MAU's
x % Users Who Purchased Through FB
= Users Who Purchased Through FB
x Gross Payments per Payment User
= Total FB Transaction Volume
x Facebook Share (%)
= Payments & Other Fees Revenue
- Less Transaction Processing @ 2% of TPV
- Other Costs
= EBIT
2012E
934
1.0%
9
$100
$934
20%
$187
$19
$37
$131
70.0%
2013E 2014E 2015E

1,074 1,193
1,294
2.0%
3.0%
4.0%
21
36
52
$100
$100
$100
$2,148 $3,578 $5,176
20%
20%
20%
$430
$716 $1,035
$43
$72
$104
$86
$143
$207
$301
$501
$725
70.0% 70.0% 70.0%
2016E
1,387
5.0%
69
$100
$6,936
20%
$1,387
$139
$277
$971
70.0%
2017E
1,475
6.0%
89
$100
$8,851
20%
$1,770
$177
$354
$1,239
70.0%
CAGR
12-'17
9.6%
43.1%
56.8%
0.0%
56.8%
0.0%
56.8%
56.8%
56.8%
56.8%
Potential Value of the Expanded Payments Opportunity

Consistent with our valuation of Facebooks ad network and mobile advertising
opportunities, in Exhibit 58 we estimate the net present value of the expanded payments
opportunity by developing and discounting cash flow estimates generated from our EBIT
projections. In terms of key assumptions, we assume a tax rate in each year that is
consistent with our company-wide model, a 10% discount rate, and 3% perpetual growth
rate. Based on these assumptions, we estimate Facebooks expanded payments
opportunity to be worth $10.12 billion in enterprise value or $3.69 per share.
Facebook, Inc. (FB)
40
27 June 2012
Exhibit 58: NPV of Expanded Payments Opportunity
2012E
2013E
2014E
2015E
2016E
2017E
$187
70.0%
$131
59.0%
$77
0.91
$70
$430
70.0%
$301
61.0%
$183
0.83
$153
$716
70.0%
$501
63.0%
$316
0.76
$240
$1,035
70.0%
$725
65.0%
$471
0.70
$328
$1,387
70.0%
$971
67.0%
$651
0.64
$413
$1,770
70.0%
$1,239
69.0%
$855
0.58
$496
NPV of Incremental Payments Opportunity

Facebook Ad Network Gross Revenues
x EBIT Margin
= Global Ad Network Non-GAAP EBIT
x (1-Tax Rate)
= After Tax EBIT
x Discount Factor
= Present Value
1
/ (Discount Rate
x Terminal UFCF
= Terminal Value
x Discount Factor
= Enterprise Value
= Per Share Impact
1
10%
3%
16.4x
$884
$14,525
0.58
$8,423
$1,700
$10,123
2742
$3.69
NPV of NOL
We note that the settlement of stock awards and the exercise of stock options generates a
corporate income tax deduction for Facebook. For the purposes of valuing the NOL, which
is dependent on Facebooks share price 5-6 months from the IPO date, we assume a
share price of $33.5, the mid-point of Facebooks trading range since listing. In turn, we
estimate that the gross value of this NOL is approximately $12 billion. On a net present
value basis, we calculate that this is worth approximately $3.8 billion.
Exhibit 59: Estimated NPV of NOL
2012E
Pretax Income
$476
x Tax Rate
= Calculated Income Tax Expense
2013E
$1,991
41%
$816
2014E
$2,580
40%
$1,019
2017E
$4,568
31%
$1,416
2018E
$5,356
29%
$1,553
2019E
$6,173
27%
$1,667
2020E
$6,992
25%
$1,748
2021E
$7,779
25%
$1,945
2022E
$8,499
25%
$2,125
Cash Tax
- Calculated Income Tax Expense
= Tax Savings
$0
$816
($816)
$0
$0
$0
$1,416
$1,019 $1,209 $1,265 $1,416
($1,019) ($1,209) ($1,265)
$0
$1,553
$1,553
$0
$1,667
$1,667
$0
$1,748
$1,748
$0
$1,945
$1,945
$0
$2,125
$2,125
$0
NOL's (BOP)
+ Increase (Decrease)
= NOL's (EOP)
$12,154
Tax Savings
Discount Rate
NPV of NOL's
$12,154
($1,991)
$10,163
2015E
$3,181
38%
$1,209
2016E
$3,834
33%
$1,265
10%
$3,756
$816
$10,163 $7,583 $4,402

($2,580) ($3,181) ($3,834)
$7,583 $4,402
$568
$568
($568)
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$1,019
$568
$0
$0
$0
$0
$0
$1,209
$1,265
Facebook, Inc. (FB)
41
27 June 2012
The Output
Based on the aforementioned outlined assumptions, our DCF points to an equity value for
the base business of ~$61 billion, of which $3.8 billion is attributable to the NOL. Layering
in the net present values for the ad network, mobile advertising, and expanded payments
opportunity, our target equity valuation for Facebook is $34 per share. We note our
valuation methodology implicitly assumes a 100% probability that Facebook undertakes
these initiatives in the relatively near future.
Exhibit 60: Facebook DCF + NOL + NPV of Future Opportunities
EBITDA
Net Income
+ Depreciation & Amortization
+ Other Non-Cash Charges (Benefits)
+ Interest Expense (Income)
+ Changes in Operating Assets & Liabilities
= Unlevered Cash Flows
- Capital Expenditures
= Unlevered Free Cash Flows
Y/Y % Change
2013E
$3,415.0
($63.6)
$645.6
$819.9
($41.8)
($36.1)
$1,323.9
($1,640.4)
($316.5)
-127.5%
Terminal UFCF
x Terminal UFCF Multiple
= Terminal Value
2015E
$5,404.4
$1,560.6
$1,010.2
$1,282.9
($70.2)
$9.3
$3,792.8
($1,808.5)
$1,984.3
59.0%
2016E
$6,481.6
$1,972.5
$1,211.5
$1,538.6
($102.1)
$37.1
$4,657.7
($1,899.0)
$2,758.7
39.0%
2017E
$7,676.9
$2,568.5
$1,434.9
$1,822.4
($148.4)
$66.4
$5,743.8
($1,993.9)
$3,749.9
35.9%
CAGR
13-'17
22.4%
-22.1%
22.1%
--44.3%
5.0%
--
$3,878
16.4x
$63,706
Weighted Average Cost of Capital

Perpetual UFCF Growth Rate ("G")
10%
3%
Terminal Value
/ EBITDA
= Implied Terminal EBITDA Multiple
NPV of Unlevered Free Cash Flows

+ Present Value of Terminal Value
= Enterprise Value
- Year End Net Debt (Cash)
+ NPV of NOL
= Equity Value
+ NPV of Ad Network Opportunity
+ NPV of Mobile Advertising Opportunity
+ NPV of Expanded Payments Opportunity
= Equity Value For Base Business + Future Opportunities
/ Diluted Shares Outstanding
= Equity Value Per Share
2014E
$4,392.5
$1,174.9
$821.0
$1,042.7
($50.8)
($17.4)
$2,970.5
($1,722.4)
$1,248.1
-494.3%
$63,706
$7,677
8.3x
2013E
$6,562
$40,454
$47,016
($10,603)
$3,756
$61,376
$8,414
$12,302
$10,123
$92,215
2,742
$34
Facebook, Inc. (FB)
42
27 June 2012
Exhibit 61: Summary of Facebook Valuation $BillionBase Business + Future

Opportunities
$100
$10
$90
$80
$8
$70
$12
$4
$'s in Bils.
$60
$11
$50
$92
$40
$61
$30
$47
$20
$10
$0
Core Business
Net Cash
NPV of NOL
Base
Business
NPV of Mobile NPV of Ad

Ad
Network
Opportunity Opportunity
NPV of
Expanded
Payment
Opportunity
Total Equity
Value
Implied Multiples
As a sanity check, we compare our DCF/NPV-derived valuation with other comparable
Internet stocks, including Amazon, eBay, Google, Priceline, Groupon, Opentable,
HomeAway, LinkedIn, Zynga, Tripadvisor, Tencent, and Bidu.
EV/EBITDA
Our price objective suggests target EV/EBITDA multiples of 31 and 23 for 2012-13
estimates, respectively. This compares with Facebooks current trading EV/EBITDA
multiples of 30 and 23 for 2012-13 forecasts.
EV/EBITDA
Exhibit 62: Comparative EV/EBITDA* Multiples, 2012E-2013E

60x
50x
40x
30x
20x
10x
0x
54x
31x
32x
31x
23x
19x
11x 10x
FB
AMZN
7x 6x
EBAY
GOOG
14x
6x
GRPN
15x 12x
14x 11x
PCLN
OPEN
2012
19x
13x
AWAY
9x 6x
LNKD
ZNGA
18x 15x
TRIP
21x
17x
Tencent
18x
13x
BIDU
2013
Source: Company data, Factset, Bloomberg, Credit Suisse estimates.
P/E
On a price-to-earning basis, our target price implies that Facebook can trade at 71 times
and 54 times our 2012 and 2013 P/E estimates (excluding SBC), respectively, compared
with its current trading multiples of 70 and 53 for 2012 and 2013 estimates, respectively.
Facebook, Inc. (FB)
43
27 June 2012
P/E (Non-Gaap)
Exhibit 63: Comparative P/E* Multiples, 2012E-2013E

180x
160x
140x
120x
100x
80x
60x
40x
20x
0x
157x
87x
81x
71x
54x
40x
36x
18x 16x
FB
AMZN
13x 11x
EBAY
GOOG
11x
GRPN
38x
29x 25x
22x 17x
PCLN
OPEN
2012
21x 16x
28x
AWAY
LNKD
29x 24x
31x 25x
24x 17x
ZNGA
TRIP
Tencent
BIDU
32x 27x
27x 20x
24x 18x
TRIP
Tencent
BIDU
2013
P/FCF
Looking at price-FCF, our DCF/NPV valuation implies target multiples of 192 and 97 off
our 2012 and 2013 projections, respectively. Facebook currently trades at 2012 and 2013
FCF multiples of 187 and 94, respectively.
Exhibit 64: Comparative P/FCF* Multiples, 2012E-2013E
250x
P/FCF
200x
150x
192x
186x
97x
98x
100x
45x
50x
25x
17x 18x
18x 14x
EBAY
GOOG
24x
7x
22x 18x
20x 20x
OPEN
AWAY
24x
20x 16x
10x
0x
FB
AMZN
GRPN
PCLN
2012
LNKD
ZNGA
2013
Facebook, Inc. (FB)
44
27 June 2012
Investment Risks
Growth in Mobile Engagement
We anticipate that the rate of growth in mobile usage for Facebook will exceed the growth
in usage through desktop for the foreseeable future. However, Facebook does not
currently generate any meaningful revenue from usage on its mobile products, and its
ability to do so successfully is unproven. For example, the first mobile ad-unit was only
introduced in March 2012. To the extent that mobile engagement is substituted for desktop
engagement, and Facebook is unable to successfully implement monetization strategies
for mobile users, the companys financial performance and ability to grow revenue could
be negatively affected.
Social Advertising Still Nascent
While we are believers in the power of social advertising, this advertising medium is still
nascent with ambiguity surrounding its long-term effectiveness. Similarly, online
advertising is a highly competitive and evolving market with relatively low switching costs
for ad buyers. On this basis, a risk exists that in the longer-term Facebooks ad products
do not meet buyer expectations relative to alternatives.
Dual Class Voting Stock
We note that Facebooks capital structure contains dual-class voting shares. Facebooks
Class B shares carry ten votes per share versus one vote per share for Class A stock.
Approximately 56% of Facebooks voting power is controlled by founder, chairman and
CEO Mark Zuckerberg by way of Class B shares owned in his personal capacity and
through voting agreements with certain stockholders. Therefore, this limits the ability of
public shareholders to significantly influence key decisions.
Customer Concentration
In 1Q12, up to 19% of the companys revenue was generated through Zynga from
payments processing fees, direct advertising revenue, and revenue from ads shown on
pages generated by Zygna apps. The health of this revenue stream is contingent upon
Zygna maintaining its level of engagement with Facebooks users and Facebooks ability
to continue monetizing this engagement.
Regulatory/Privacy Risk
Given the volume of user data, and mechanisms through which it harnesses this data for
commercial purposes, Facebook is subject to complex and evolving laws and regulations
that pertain to privacy, data protection, and related matters. Many of these laws and
regulations are subject to both change and uncertain interpretations, and could result in
claims, changes to business practices, increased costs of operations, and declines in user
growth or engagement.
Future Monetization
Our investment thesis and valuation analysis hinges on Facebook being able to find other
ways to monetize its platform beyond first-party display advertising and payments related
to its social games. A risk exists that these potential initiatives do not come to fruition.
Lockup Expiration
We note a substantial supply of shares will become available following the lock-up period
expiration dates detailed in Exhibit 65. In turn, this could create volatility with Facebooks
share price.
Facebook, Inc. (FB)
45
27 June 2012
Exhibit 65: Summary of Facebook Lockup Expiration

Date Available for Sale
Number of Shares
91 days after 05/17/2012
271 million shares held by the selling stockholders other than Mr. Zuckerberg
Approximately 137 million shares underlying net-settled Pre-2011 RSUs held by directors and then current employees,
151-180 days after 05/17/2012 approximately 55 million outstanding shares and 55 million shares subject to stock options held by then current employees
other than Mr. Zuckerberg
181 days after 05/17/2012
1,194 million outstanding shares and approximately 18 million shares underlying other net-settled Pre-2011 RSUs
211 days after 05/17/2012
149 million shares held by the selling stockholders other than Mr. Zuckerberg
366 days after 05/17/2012
47 million shares held by Mail.ru Group Limited and DST Global Limited and their respective affiliates
Source: Company data
Facebook, Inc. (FB)
46
27 June 2012
Management
Mark Zuckerberg, Founder, Chief Executive Officer and Director
Mark Zuckerberg founded Facebook in February 2004 and has served as CEO since
inception. Mr. Zuckerberg attended Harvard University where he studied computer
science. While at that university, Mr. Zuckerberg launched Facebook. Mr. Zuckerberg has
been a member of the board of directors since July 2004 and has served as the chairman
of the board of directors since January 2012. Mr. Zuckerberg is the companys largest and
controlling stockholder.
Sheryl K. Sandberg, Chief Operating Officer
Sheryl Sandberg has served as Facebooks chief operating officer since March 2008, and
as of June 25th 2012 named a member of the companys board of directors. From
November 2001 to March 2008, Ms. Sandberg served in various positions at Google, Inc.,
most recently as vice president, Global Online Sales and Operations. Ms. Sandberg is
also a former chief of staff of the U.S. Treasury Department and previously served as a
consultant with McKinsey & Company, and as an economist with The World Bank. In
addition, Ms. Sandberg has been a member of the board of directors of the Walt Disney
Company since December 2009. Ms. Sandberg holds an A.B. in economics from Harvard
University and an M.B.A. from Harvard Business School.
David A. Ebersman, Chief Financial Officer
David Ebersman has served as Facebooks chief financial officer since September 2009.
Previously, Mr. Ebersman served in various positions at Genentech, Inc., a biotechnology
company, including as its chief financial officer from March 2005 and as an executive vice
president from January 2006 until April 2009. Prior to joining Genentech, Mr. Ebersman
was a research analyst at Oppenheimer & Company, Inc., an investment company. In
addition, Mr. Ebersman has been a member of the board of directors of Ironwood
Pharmaceuticals, Inc. since July 2009. Mr. Ebersman holds an A.B. in economics and
international relations from Brown University.
Facebook, Inc. (FB)
47
27 June 2012
Exhibit 66: Facebook Quarterly Income Statement, 1Q10-4Q12

Advertising
+ Payments & Other Fees
= Total Revenue
- Cost of Revenue
= Gross Profit
- Marketing & Sales
- Research & Development
- General & Administrative
= Operating Income (GAAP)
+ Interest & Other Income (Expense), Net
= Income (Loss) b/f Prov. for Income Taxes
- Provision for Income Taxes
= Net Income (Loss)
- Net Income Attributable to Participating Securities
= Net Inc. Attrib. to Class A & B Stockholders
Diluted EPS
Y/Y % Growth
Advertising
Payments & Other Fees
Total Revenue
Cost of Revenue
Gross Profit
Marketing & Sales
Research & Development
General & Administrative
Operating Income (GAAP)
Net Income (Loss)
Diluted EPS
1Q10
$340
$5
$345
$100
$245
$36
$25
$22
$162
$0
$162
$67
$95
-----------------------
Qtr. Ending Mar

1Q11
1Q12
$637
$871
$94
$187
$731
$1,058
$167
$277
$564
$781
$68
$159
$57
$153
$51
$88
$388
$381
$10
$1
$398
$382
$165
$177
$233
$205
$80
$68
$153
$137
$0.11
$0.09
87.4%
1780.0%
111.9%
67.0%
130.2%
88.9%
128.0%
131.8%
139.5%
145.3%
---
36.7%
98.9%
44.7%
65.9%
38.5%
133.8%
168.4%
72.5%
-1.8%
-12.0%
-18.2%
2Q10
$424
$8
$431
$111
$320
$44
$32
$26
$218
$0
$218
$89
$129
-----------------------
Qtr. Ending Jun

2Q11
2Q12E
$776
$938
$119
$196
$895
$1,135
$210
$314
$685
$820
$103
$189
$99
$172
$76
$1,120
$407
($661)
$0
($1)
$407
($662)
$167
($15)
$240
($646)
$0
($646)
($0.25)
83.2%
1486.7%
107.7%
89.2%
114.1%
134.1%
209.4%
192.3%
86.7%
86.0%
---
20.9%
64.8%
26.8%
49.7%
19.8%
83.4%
74.2%
1373.6%
-262.4%
-369.3%
---
3Q10
$450
$17
$467
$131
$336
$45
$41
$34
$216
$0
$216
$85
$131
-----------------------
Qtr. Ending Sep

3Q11
3Q12E
$798
$977
$156
$286
$954
$1,263
$236
$372
$718
$891
$124
$226
$108
$224
$72
$117
$414
$324
$0
($1)
$414
$323
$187
$133
$227
$191
$0
$191
$0.07
77.3%
817.6%
104.3%
80.2%
113.7%
175.6%
163.4%
111.8%
91.7%
73.3%
---
22.4%
83.6%
32.4%
57.6%
24.1%
82.4%
107.0%
63.2%
-21.7%
-15.9%
---
4Q10
$655
$76
$731
$150
$581
$59
$45
$40
$437
$0
$437
$186
$251
-----------------------
Qtr. Ending Dec

4Q11
4Q12E
$943
$1,150
$188
$242
$1,131
$1,392
$247
$356
$884
$1,036
$132
$232
$124
$239
$80
$131
$548
$434
$0
($2)
$548
$432
$246
$177
$302
$255
$0
$255
$0.10
44.0%
147.4%
54.7%
64.7%
52.2%
123.7%
175.6%
100.0%
25.4%
20.3%
---
22.0%
28.6%
23.1%
44.0%
17.2%
76.1%
93.1%
63.5%
-20.9%
-15.6%
---
Facebook, Inc. (FB)
48
27 June 2012
Exhibit 67: Facebook Annual Income Statement, 2010-2017E

2010
Advertising
$1,869
+ Payments & Other Fees
$106
= Total Revenue
$1,974
- Cost of Revenue
$492
= Gross Profit
$1,482
- Marketing & Sales
$184
- Research & Development
$143
- General & Administrative
$122
= Operating Income (GAAP)
$1,033
+ Interest & Other Income (Expense), Net
($24)
= Income (Loss) b/f Prov. for Income Taxes
$1,009
- Provision for Income Taxes
$402
= Net Income (Loss)
$607
- Net Income Attributable to Participating Securitie $234
= Net Inc. Attrib. to Class A & B Stockholders
$373
Diluted EPS
$0.28
2011
$3,154
$557
$3,711
$860
$2,851
$427
$388
$279
$1,757
($61)
$1,696
$695
$1,001
$332
$669
$0.46
2012E
$3,936
$911
$4,848
$1,319
$3,529
$806
$788
$1,456
$478
($2)
$476
$471
$4
$68
($64)
$0.00
2013E
$5,259
$1,197
$6,456
$1,756
$4,700
$1,072
$1,059
$620
$1,950
$42
$1,991
$816
$1,175
$0
$1,175
$0.44
2014E
$6,706
$1,504
$8,210
$2,233
$5,977
$1,355
$1,314
$780
$2,529
$51
$2,580
$1,019
$1,561
$0
$1,561
$0.58
2015E
$8,246
$1,855
$10,102
$2,748
$7,354
$1,667
$1,616
$960
$3,111
$70
$3,181
$1,209
$1,973
$0
$1,973
$0.72
2016E
$9,858
$2,257
$12,115
$3,295
$8,820
$1,999
$1,938
$1,151
$3,731
$102
$3,834
$1,265
$2,568
$0
$2,568
$0.91
2017E
$11,621
$2,729
$14,349
$3,903
$10,446
$2,368
$2,296
$1,363
$4,420
$148
$4,568
$1,416
$3,152
$0
$3,152
$1.10
Y/Y % Growth
Advertising
Payments & Other Fees
Total Revenue
Cost of Revenue
Gross Profit
Marketing & Sales
Research & Development
General & Administrative
Operating Income (GAAP)
Net Income (Loss)
Diluted EPS
68.8%
428.0%
88.0%
74.8%
92.4%
132.1%
171.3%
128.7%
70.1%
64.9%
64.3%
24.8%
63.6%
30.6%
53.4%
23.8%
88.9%
103.2%
422.0%
-72.8%
-99.6%
-99.6%
33.6%
31.3%
33.2%
33.1%
33.2%
32.9%
34.3%
-57.4%
308.2%
26439.0%
25437.6%
27.5%
25.7%
27.2%
27.2%
27.2%
26.4%
24.1%
25.9%
29.7%
32.8%
30.2%
23.0%
23.4%
23.0%
23.0%
23.0%
23.0%
23.0%
23.0%
23.0%
26.4%
23.9%
19.5%
21.7%
19.9%
19.9%
19.9%
19.9%
19.9%
19.9%
19.9%
30.2%
27.7%
CAGR
12-'17
24.2%
24.5%
24.2%
24.2%
24.2%
24.0%
23.8%
-1.3%
56.1%
-344.2%
57.2%
24.6%
272.0%
17.9%
20.9%
18.4%
18.4%
18.4%
18.4%
18.4%
18.4%
18.4%
22.7%
20.3%
144.6%
711.5%
154.1%
120.6%
167.5%
60.0%
64.4%
35.6%
294.3%
165.1%
180.0%
263.3%
Facebook, Inc. (FB)
49
27 June 2012
Exhibit 68: Facebook Balance Sheet, 2010-2017E
2010
2011
2012E
2013E
2014E
2015E
2016E
2017E
$1,785
$0
$373
$88
$2,246
$574
$96
$74
$2,990
$1,512
$2,396
$547
$149
$4,604
$1,475
$162
$90
$6,331
$7,663
$2,636
$717
$251
$11,267
$2,634
$1,037
$145
$15,084
$8,585
$2,628
$955
$332
$12,499
$3,629
$1,037
$194
$17,359
$10,219
$2,628
$1,192
$417
$14,457
$4,530
$1,037
$246
$20,270
$12,635
$2,628
$1,439
$514
$17,216
$5,329
$1,037
$303
$23,885
$16,042
$2,628
$1,693
$616
$20,979
$6,016
$1,037
$363
$28,396
$20,474
$2,628
$1,966
$730
$25,797
$6,575
$1,037
$430
$33,840
$29
$75
$137
$42
$106
$389
$117
$250
$72
$828
$63
$171
$296
$90
$279
$899
$398
$0
$135
$1,432
$107
$273
$484
$146
$279
$1,289
$500
$0
$2,242
$4,031
$151
$359
$638
$191
$279
$1,619
$610
$0
$2,902
$5,131
$203
$451
$803
$241
$279
$1,977
$727
$0
$3,777
$6,482
$266
$557
$988
$297
$279
$2,387
$853
$0
$4,884
$8,124
$338
$677
$1,185
$361
$279
$2,840
$988
$0
$6,238
$10,066
$422
$819
$1,404
$437
$279
$3,360
$1,132
$0
$7,866
$12,358
$0
$0
$0
$0
$0
$0
$0
$0
Convertible Preferred Stock

Common Stock
APIC
Accumulated Other Comprehensive Loss
Retained Earnings
Total Stockholders' Equity
$615
$0
$947
($6)
$606
$2,162
$615
$0
$2,684
($6)
$1,606
$4,899
$0
$0
$9,449
($6)
$1,610
$11,053
$0
$0
$9,449
($6)
$2,785
$12,228
$0
$0
$9,449
($6)
$4,346
$13,789
$0
$0
$9,449
($6)
$6,318
$15,761
$0
$0
$9,449
($6)
$8,887
$18,330
$0
$0
$9,449
($6)
$12,039
$21,482
Total Liabilities & Stockholders' Equity
$2,990
$6,331
$15,084
$17,359
$20,270
$23,885
$28,396
$33,840
ASSETS
Cash & Cash Equivalents
Marketable Securities
Accounts Receivable, net
Prepaid Expenses & Other Current Assets
Total Current Assets
PP&E, net
Godwill & Intangible Assets, net
Other Assets
Total Assets
LIABILITIES & STOCKHOLDERS' EQUITY
Accounts Payable
Platform Partners Payable
Accrued Expenses & Other Curr. Liabilities
Deferred Revenue & Deposits
Current Portion of Capital Lease Obligations
Total Current Liabilities
Capital Lease Obligations, less Curr. Portion
Long-term Debt
Other Liabilities
Total Liabilities
Commitments & Contingencies
Facebook, Inc. (FB)
50
27 June 2012
Exhibit 69: Facebook Cash Flow Statement, 2010-2017E
2010
2011
2012E
2013E
2014E
2015E
2016E
2017E
Cash Flows from Operating Activities

Net Income
$606
$1,000
$4
$1,175
$1,561
$1,973
$2,568
$3,152
Adjustments
Depreciation & Amortization
Loss on Write-off of Equip.
Share-Based Compensation
Tax Benefit from Share-Based Award Activity
Excess Tax Benefit from Share-Based Award Activity
Changes in Assets & Liabilities
Net Cash Provided by Operating Activities
$139
$3
$20
$115
($115)
($70)
$698
$323
$4
$217
$433
($433)
$5
$1,549
$489
$1
$1,578
$0
$0
$62
$2,134
$646
$0
$820
$0
$0
($36)
$2,604
$821
$0
$1,043
$0
$0
($17)
$3,407
$1,010
$0
$1,283
$0
$0
$9
$4,275
$1,212
$0
$1,539
$0
$0
$37
$5,356
$1,435
$0
$1,822
$0
$0
$66
$6,476
Cash Flows from Investing Activities

Purchases of PP&E
($293) ($606) ($1,648) ($1,640) ($1,722) ($1,809) ($1,899) ($1,994)
Purchases of Marketable Securities
$0
($3,025) ($876)
$0
$0
$0
$0
$0
Maturities of Marketable Securities
$0
$516
$567
$8
$0
$0
$0
$0
Sales of Marketable Securities
$0
$113
$69
$0
$0
$0
$0
$0
Investments in Non-Marketable Equity Securities
$0
($3)
($1)
$0
$0
$0
$0
$0
($24)
($875)
$0
$0
$0
$0
$0
Acquisitions of Business, Net of Cash & Pruchase of ($22)
Changes in Restricted Cash & Deposits
($9)
$6
($1)
$0
$0
$0
$0
$0
Net Cash Used in Investing Activities
($324) ($3,023) ($2,765) ($1,632) ($1,722) ($1,809) ($1,899) ($1,994)
Cash Flows from Financing Activities
Net Proceeds from Issuance of Conv. Pfd. Stock
Net Proceeds from Issuance of Common Stock
Proceeds from Exercise of Stock Options
Proceeds from (Repayments) of Long-Term Debt
Proceeds from Sale & Lease-back Transactions
Principal Payments on Capital Lease Obligations
Excess Tax Benefit from Share-Based Actvitiy
Net Cash Provided by Financing Activities
Effect of Exchange Rates on Cash
Net Increase (Decrease) in Cash & Cash Equiv.
Cash & Cash Equivalents (BOP)
Cash & Cash Equivalents (EOP)
$0
$500
$6
$250
$0
($90)
$115
$781
($3)
$1,152
$633
$1,785
$0
$998
$28
($250)
$170
($181)
$433
$1,198
$3
($273)
$1,785
$1,512
$0
$6,765
$5
$0
$62
($50)
$0
$6,782
$0
$6,151
$1,512
$7,663
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
($50)
($50)
($50)
($50)
($50)
$0
$0
$0
$0
$0
($50)
($50)
($50)
($50)
($50)
$0
$0
$0
$0
$0
$922
$1,634 $2,416 $3,407 $4,432
$7,663 $8,585 $10,219 $12,635 $16,042
$8,585 $10,219 $12,635 $16,042 $20,474
Facebook, Inc. (FB)
51
27 June 2012
Appendix
CS Facebook Advertising Buyer Survey
Exhibit 70: Respondent Pool Overview100 Overview
% of Respondents by Total Online Annual Ad Spend

30%
24%
% of Total
25%
19%
17%
20%
13%
15%
10%
5%
4%
7%
5%
2%
5%
0%
<$50K
$50K -
$100K -
$500K -
$100K
$500K
$1M
$1M -
$10M -
$30M -
$50M -
$10M
$30M
$50M
$100M
> $100M
% of Total
% of Online Ad Budgets Spent on Facebook

41%
50%
40%
33%
30%
20%
10%
7%
5%
20-30%
10%
30-50%
0%
1-10%
10-20%
> 50%
% of Online Ad Spend on Facebook
Exhibit 71: % of Respondents by Role Type

Specialist social media
Other
agency professional
12%
Exhibit 72: % of Respondents by Buying Channel

In-house marketing
4%
professional - Exec Level

38%
Interactive agency
professional
18%
Q: Do you buy advertising through offline

channels?
No
37%
Traditional agency
professional
4%
In-house marketing
Yes
63%
professional - Managerial
24%
Facebook, Inc. (FB)
52
27 June 2012
Companies Mentioned (Price as of 26 Jun 12)

Amazon.com Inc. (AMZN, $225.61, OUTPERFORM, TP $270.00)
AOL Inc. (AOL, $27.25, NEUTRAL, TP $31.00)
Baidu Inc (BIDU.OQ, $110.59, NEUTRAL [V], TP $122.00)
eBay Inc. (EBAY, $42.49, NEUTRAL, TP $41.00)
Facebook Inc. (FB, $33.10, NEUTRAL, TP $34.00)
Google, Inc. (GOOG, $565.10, OUTPERFORM, TP $770.00)
Groupon Inc. (GRPN, $10.25, RESTRICTED [V])
HomeAway Inc. (AWAY, $20.48, NEUTRAL [V], TP $28.00)
InterActiveCorp (IACI, $45.42, OUTPERFORM, TP $58.00)
LinkedIn (LNKD, $106.42)
Microsoft Corp. (MSFT, $29.99, OUTPERFORM, TP $38.00)
New York Times Co. (NYT, $6.86)
OpenTable Inc. (OPEN, $44.22, NEUTRAL [V], TP $50.00)
priceline.com Inc. (PCLN, $656.15, OUTPERFORM, TP $822.00)
Renren Inc. (RENN.N, $4.70, NEUTRAL [V], TP $4.80)
Sina Corporation (SINA.OQ, $51.11, OUTPERFORM [V], TP $73.30)
Tencent Holdings (0700.HK, HK$218.60, OUTPERFORM, TP HK$274.00)
TripAdvisor, Inc (TRIP, $44.01)
Walt Disney Company (DIS, $47.29, OUTPERFORM, TP $50.00)
Zynga Inc (ZNGA, $5.77)
Disclosure Appendix
Important Global Disclosures
Spencer Wang & Dean Prissman each certify, with respect to the companies or securities that he or she analyzes, that (1) the views expressed in
this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation
was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.
See the Companies Mentioned section for full company names.
3-Year Price, Target Price and Rating Change History Chart for FB
FB
Date
Closing
Price
(US$)
Target
Price
Initiation/
(US$) Rating Assumption
35
30
25
20
15
10
5
US$ 0
Closing Price
Target Price
Initiation/Assumption
Rating
O=Outperform; N=Neutral; U=Underperform; R=Restricted; NR=Not Rated; NC=Not Covered
The analyst(s) responsible for preparing this research report received compensation that is based upon various factors including Credit Suisse's total
revenues, a portion of which are generated by Credit Suisse's investment banking activities.
Analysts stock ratings are defined as follows:
Outperform (O): The stocks total return is expected to outperform the relevant benchmark* by at least 10-15% (or more, depending on perceived
risk) over the next 12 months.
Neutral (N): The stocks total return is expected to be in line with the relevant benchmark* (range of 10-15%) over the next 12 months.
Underperform (U): The stocks total return is expected to underperform the relevant benchmark* by 10-15% or more over the next 12 months.
*Relevant benchmark by region: As of 29th May 2009, Australia, New Zealand, U.S. and Canadian ratings are based on (1) a stocks absolute total
return potential to its current share price and (2) the relative attractiveness of a stocks total return potential within an analysts coverage universe**,
with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities.
Facebook, Inc. (FB)
53
27 June 2012
Some U.S. and Canadian ratings may fall outside the absolute total return ranges defined above, depending on market conditions and industry
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Global Ratings Distribution
Outperform/Buy*
48%
(59% banking clients)
Neutral/Hold*
41%
Underperform/Sell*
9%
Restricted
2%
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Price Target: (12 months) for (FB)
Method: We use the discounted cash flow (DCF) method to calculate our $34 target price for Facebook. Our 4-year DCF uses a 3% terminal growth
rate and 10% discount rate. We apply this discount rate to our 2013-2017 unlevered free cash flow estimates for Facebook. We use our discounted
unlevered FCF (free cash flow) estimates from 2013 through 2017 to arrive at the stock's current trading price.
Risks: Risks to our $34 target price for Facebook are: growth in mobile engagement which currently has limited monetization, future monetization
initiatives do not materialize, limited ability for public shareholders to influence key decisions because of dual class voting stock, deteriorating global
economy, competition, unpredictable investment spending, and potential impacts from data privacy and data protection regulations/laws.
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Facebook, Inc. (FB)
54
27 June 2012
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Facebook, Inc. (FB)
55
27 June 2012
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27 June 2012

Facebook, Inc. (FB)

*Stock ratings are relative to the relevant country benchmark.

A Lot to "Like," But Valuation Looks Full

Event: We initiate coverage of FB with a Neutral rating and a $34 target

Investment Case: Social media continues to rise in importance, accounting for

Also, FBs platform is powerful; Facebook Connect provides the ability to

Our proprietary survey of advertisers finds that marketers view FBs

Valuation: While we are bullish on FBs prospects, we think current

Share price performance

Indexed S&P 500 INDEX

On 06/26/12 the S&P 500 INDEX closed at 1319.99

Financial and valuation metrics

Source: Company data, Credit Suisse estimates.

DISCLOSURE APPENDIX CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, INFORMATION ON

CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS

A Lot to Like, But Valuation Looks

Facebook, Inc. (FB)

Roadmap to This Report

Financial Forecasts: We discuss our five-year financial projections for Facebook.

Valuation: We provide a detailed valuation analysis of Facebook, which includes a

Facebook, Inc. (FB)

Friends with Benefits

% of Time Online (US)

Onl ine Gaming

6. 3 6.3 6.2 6.1

Source: comScore Media Metrix.

Facebook, Inc. (FB)

FB Monthly Active Users

Exhibit 3: Facebook User Base in Mils, 1Q12

Exhibit 4: Facebook User Base in Mils, 1Q12

ROW, 242 , 27%

Europe , 241 , 26%

Source: Company data.

Source: Company data.

Number of Users by Social Networking Site, 1Q12

Global Internet User Penetration by Social Networking Site, 1Q12

Facebook, Inc. (FB)

The Origins of Network Effect

Identity and User Data;

The Facebook Platform.

Source: Company data, Credit Suisse estimates.

Will the Real You Please Stand Up?

More User Data

Source: Company data, Credit Suisse estimates.

Facebook, Inc. (FB)

Source: Credit Suisse.

Facebook, Inc. (FB)

Content and Context of Status Updates

Change in Relationship Status

Degree Major, Degree Minor

Source: Credit Suisse.

A simple social graph is represented below.

Friend - Business - Follow

Source: Framework from Mark Granovetters Strength of Weak Ties, 1973.

In addition, content (information) posted on Facebook can be distributed across a users

Facebook, Inc. (FB)

Source: Credit Suisse, Activity Streaming Working Group activitystrea.ms.

Status UpdateGrowing Engagement Drives Activity in the Stream

Source: Company data, Credit Suisse estimates.

Facebook, Inc. (FB)

"Like" button for

Source: Pew Internet Research, 2011.