Write a one page executive summary on the FB file
Write a one page executive summary on the FB file
Marlone Tham 05/24/2022 Bus 341w Preliminary Paper Facebook Highs & Lows V aluing High-Gr owth Companies It is often said that high-growth companies have higher valuations than low-growth companies in their earnings. Alternatively, to correct the size ef fect, their profit multiples depend positively on the growth rate. This is worth retaining a multiple of operating profit (P/EBIT) or the classic multiple of net profit ( or P/E). Growth in results can lead to lower multiples if the investment necessary for this growth eats up too much of the results. A company is considered a high-growth company when its or ganic revenue growth exceeds 15 percent annually . The most ef fective and ef ficient way to value these companies is via the DCF (discounted cash-flow) valuation. The free cash flow method, DCF , is based on the principle that the value of an asset is equal to the net present value of the future cash flows it generates. The value of an asset or an entity is thus calculated as the sum of the cash flows generated, discounted at the rate reflecting the level of risk of the purchase or entity in question. The company’s valuation by the DCF method is based on an explicit construction of the assumptions underlying a valuation, namely the forecasts of growth, investment, long-term profitability , and the discount rate of future cash flows. It reflects the level of risk of the activity and its financial structure. Free cash flow is calculated before paying finance char ges; it accrues to shareholders and lenders. Enterprise value is determined by discounting free cash flow at the weighted average cost of capital. The equity value is then calculated by deducting the net financial debt using the indirect valuation approach. DCF Analysis When There Is No Cash Flow Nowadays, losses and value rise simultaneously because it is often the case that significant investments need to be made to experience growth. As companies expensed their assets, significant losses replaced growing balance sheets. That resulted in analysts questioning companies with average losses if they are investing enough. High growth and accounting losses simultaneously made DCF valuation challenging and questionable. However , it was still considered the best method of valuing these companies because other methods would fail. For example, price-earnings multiples is another method. However , as it generated imprecise results and provided little to no insight into what drives the company’ s valuation, this could not be a reliable method. This method would often fail when earnings were negative. Another method is known as the natural options, but it requires the same values as DCF , such as estimates of long-term revenue growth rate, long-term volatility of revenue growth, and profit mar gins. One key reason why methods such as this and others could not be used is that they could not account for the uniqueness of each company in a fast-changing environment. How high-growth companies are valuated is dif ferent from how other companies are evaluated. Even though the components are the same, the order and the emphasis dif fer from the traditional process for established companies. In a conventional method, it starts by analyzing historical performance, but for high-growth companies, it begins by examining the expected long-term development of their markets. Essentially , we must work backward for these companies. As long-term projections are uncertain, multiple scenarios are created. We consider that the market might develop under dif ferent conditions in each scenario. The DCF method addresses the problems of high growth rates and uncertainty , but it is still flawed as it cannot eliminate the requirement to make dif ficult forecasts. The Valuation Pr ocess The first step in evaluating any company is to go over the company’s past performance. However , for high-growth companies, historical data is not prophetic of the company’s performance. The critical step is to look at the future market, forecast the level of the state of yielding profit, and consider the necessary investments to achieve financial success. Firstly is to choose a point very into the future where the economic performance is likely to stabilize and forecast. After forecasting is developed, we start linking future performance and current performance. The current performance will blend the investments and the expenses; personal investments must be turned into account, but this is not easy to do, as the dif ference between investment and expense is invisible. There is much uncertainty concerning the forecasting of high-growth companies; single long-term forecasting is unreliable at this point. Multiple scenarios help better understand and prepare for the future. Forecasts, including the ascending revenue, profitability mar gins, and necessary financing, must remain invariable for all the scenarios. We have to apply non-deterministic and numerical weights to each scenario. These weights must be invariable with long-term historical evidence on corporate growth to fend of f estimations that lead to excessively high estimates of strategic value fallacy . Start fr om the Futur e The DCF method has the advantage of taking into account today the future profitability of the company . However , it is a model that is very sensitive to the assumptions made, particularly that relate to the terminal value. It is, therefore, necessary to ensure that the growth rate over the long term is close to the average growth rate of the economy in which the company operates. Other valuation methods, such as the multiple methods or the “asset by asset” valuation method, make it possible to obtain other benchmarks. The valuations carried out using the different techniques can then be compared to benefit from the complete information possible. The future condition of a company should be vaulted by measures of functional performance such as the extent to which a commercial product is familiar or sells in a market, average proceeds, and continuous gross mar gins. Then how long the rapid growth would continue until it stabilizes to normal levels should be determined. As most high-growth companies are companies or projects undertaken by entrepreneurs to seek, develop, and validate a scalable business model, stability usually lasts at least a decade in the future. This paper analyzes Facebook Inc or Meta Platform, a product of Mark Zuckerber g, a Harvard under graduate who founded the world’s biggest social networking site in 2004. Facebook was created to link students throughout the Harvard campus. Facebook’s popularity skyrocketed. And Facebook Inc.’s mission is now to “empower people to establish communities and bring the world closer together” (Facebook, 2020). Facebook will have over three billion users worldwide by 2021 due to the debut of its mobile apps for iOS and Android in 2008. Facebook Inc. offers free internet to its users. As a result, the social network divides its users for advertising, its main revenue stream. Due to the enormous amount of Facebook users worldwide, the app boasts one of the most diversified advertising audiences in the digital era.” They helped Facebook Inc. build what may be the world’s most acceptable business model. Facebook Inc. has surpassed Google, Amazon, Apple, and Netflix in size, growth, and profit mar gins. Following the acquisition of Oculus, a virtual reality/augmented reality device firm, Inc. bought WhatsApp and Instagram, two of its key rivals. Figur e 1 Annual Revenue Performance Facebook’ s revenue performance shows that the company recorded a consistently high-growth revenue performance from 2009 to 2021. Revenue growth is influenced by increasing the number of customers, the average transaction size, and the frequency of transactions per customer . Facebook Inc. is likely to register an ascending annual revenue growth rate. Furthermore, Facebook acquired the other experienced and competing social media platforms. According to Kaufman, one of the ways that a company can grow its revenues is by increasing the prices of goods and services; then, a group of analysts conducted one-year forecasts that could enable the company to expand its revenues. The 12-month price forecasts for Facebook inc had a tar geted median price of $290 with a high estimate of 553.00 and a low estimate of 185.00. The median estimate represents a +49.81% increase from the last price of 193.58. Figure 2 below shows the estimated (forecasted) prices of Airbnb for the next 12 months. Figur e 2 According to figure 2, the revenue growth is dependent on the ability of Facebook, Inc. to maintain user growth for the next 12 months; being able to retain or increase the number of online activities; being able to update their app, and being able to maintain data privacy and trust. Moreover , Facebook inc needs to incorporate more compelling stories to increase brand authenticity and use improved technology to supplement employees’ ef forts. Sizing the Market Facebook inc online penetration is relatively high. According to figure 4, the sales and marketing expenses have increased from a couple hundred to 2500 ( in U.S million dollars) from 2008 to 2021, respectively . When sizing the Facebook inc market, it is essential to note that using market share will not be a good measure for the company because it has zero to no competitors. Therefore the appropriate action of its size is the number of users of its platform and the bookings. Figur e 3 Figur e 4 Figur e 5 The increasing number of Facebook inc users corresponds with its revenue growth. The success of Facebook inc in maintaining growing users have enabled the company to grow . The revenue growth will be explained by user -based increment and the number of new sign-ups. The revenue forecast function shows that the revenue would increase constantly . Market conditions are assumed to be constant, and the number of market plays also remains the same without new entry or exit. The selling and distribution costs are also ongoing as development costs. The number of adults who used Facebook inc in 2017 was 2 billion, an increase from 1.86 billion recorded in 2016. Statista forecasted the number of Facebook inc to reach 2.24 billion by 2023 (Statista, 2022). Furthermore, Facebook inc has increased its popularity globally online and website sharing. Despite the popularity of Facebook inc, a survey conducted by Statista found that users are concerned with data privacy on the platform. In 2016, Facebook Inc. began to lose its pristine image of connecting the globe through social media due to censorship, data sharing, privacy concerns, and accountability challenges. Nobody expected the Cambridge Analytica scandal and its ramifications for the 2016 Presidential election. Like other online platforms, data privacy concern is a crucial factor of consideration, especially when making online transactions. Any insecure platform is likely to lose customers quickly , reducing sales revenue. The online marketplace is a fast-growing market for many companies, and many go online as technology use increases. EBITDA Margin, Capital Turnover , and ROIC T o compare the performance of businesses concerning the industry where other methods do not make much meaning, EBITDA margin, capital turnover , and revenue can be used to provide a visual representation of the performance. The image below shows the EBITDA Margin, Capital T urnover , and ROIC. Figur e 6 Figur e 7 Figur e 8 Considering the EBITDA, Facebook kept decreasing every year . Its annual and quarterly EBITDA history from 2010 to 2022. EBITDA can be defined as earnings before interest, taxes, depreciation, and amortization. ● Meta Platforms EBITDA for March 31, 2022, was $10.680B, a 20% decline year -over -year. ● Meta Platforms EBITDA for the twelve months ending March 31, 2022, was $52.050B, a 14.67% increase year -over-year. ● Meta Platforms’ 2021 annual EBITDA was $54.72B, a 38.42% increase from 2020. ● Meta Platforms’ 2020 annual EBITDA was $39.533B, a 32.99% increase from 2019. ● Meta Platforms’ 2019 annual EBITDA was $29.727B, a 1.71% increase from 2018. W ith the growing number of users and the brand marketing strategy for Facebook, the company is on an excellent path to recording positive earnings, as predicted by Analysts. Furthermore, registering an increased number of users annually indicates that Facebook services are standard quality and that customers can place positive reviews. Regarding operating profits mar gin, the current operating profit mar gin for Facebook as of March 31, 2022, is 31.20%. This could have been caused by the vast product development cost incurred in 2021, which amounted to a significant percentage of the total sales incurred in 2020, which reduced investment expenses in 2021. In addition, Facebook also incurred increased sales and marketing expenses and general expenses in 2020. For the capital turnover , Facebook inc performed high; its fixed asset turnover during the quarter ended March 31st, 2022, 2.19, was lower than its peers in the Internet Information Providers industry group during the quarter ended March 31st, 2022, 1 12.67. From December 31st, 2012, to March 31st, 2022, Facebook Inc’s average fixed asset turnover was 3.00 compared to an industry average of 57.23. The EBITDA mar gin is essential to determine the ROIC and the market share. It implies a before-tax profit mar gin that, when multiplied by the capital turnover of about percent rate while considering the corporation tax percent rate, can yield the needed long-term ROIC. It is critical to note that a positive ROIC may intensify competition among close competitors. In the long run, Facebook inc would be able to overcome the competition to increase its revenues. In this case, it is not much significant to use market share; thus, taking the growth in the number of users is justifiable. Again, having the forecast revenues to determine the projected long-term ROIC should be based on Facebook’s ef ficient use of brand marketing strategies to prove its online sale to guests and hosts more than competitors. The ROIC forecasted it could be an overstatement given that the online market is a free market for easy entry and exist by any company . Facebook has the strength of its international and national reach, and its marketing strategy remains dominant in the marketplace. W orking Backward on curr ent Performance After completing a forecast to determine total market size, market share, and return on invested finances, we must reassociate the long-term forecast back to current performance. First, we must assess the present to future long-term performance transition speed. We also must keep in mind to consider that the estimates be consistent with economic principles and industry characteristics. One way to estimate the rate of transition is to use historical evidence. The market’s volatility was observed during the 2020 COVID-19 restrictions when many companies went online to meet people’s demands. Many online trading companies recorded increased online shoppers, which has changed many people’s perceptions about convenience and af fordability in shopping. This shift in preferences has led to a reduction in the number and composition of physical shoppers, with most millennials preferring online shopping. Therefore, consumers’ shifting also entices many companies to go online, leading to market volatility . Considering these dynamics, scenario-based weights should be used to cover the challenges in the computation process. This analysis utilizes scenarios and the probabilities related to the scenarios to help solve the problems. Developing Scenarios Having probability-weighted scenarios helps deal with high-growth companies. Figures 9 and 10 below show the pessimistic and optimistic scenario forecasts for Facebook. The assumption is that the existing customers will remain the same as before COVID-19, and their level of activeness will remain unchanged. The estimated price for the product is also expected to remain the same. The Revenue increment is likely to ascend as it was before the covid 19 pandemic. In that case, the estimation will consider 2020 as an outlier and excluded from the working. Since the number of active users is estimated to change in the years from 172.2 million to a higher number , Scenario A is to grow the revenue of Facebook to get higher and lower profitability performance of the or ganization based on most likely (optimistic), normal state, and least likely (pessimism). Since the expected revenue by 2023 will be 65 billion, the average growth rate of the sales revenue applies. In this case, the expected change in income will be as shown in the figures below . Figur e 9 Figur e 10 Therefore, after the pandemic, the company will pick up thoroughly to have more users to record the projected revenue increment. The scenarios show the possibility to change, but the rates of change are dif ferent, indicating the shifting preferences toward online shopping and the essential of the product. Thus, the volatility to change quickly within a short time is manifested. Assign Weights T o assign weights to the Facebook inc scenarios, it is essential to weigh the equity value for each scenario to estimate the probability of occurrence. The scenario probabilities are invisible and highly subjective. We understand the significance of probabilistic weightings, and their resulting estimations depend on economic evidence. Any set of forecasts built on foundational financial analysis has to account for the historical performance of other high-growth companies. Conclusion In conclusion, it is often said that high-growth companies in their earnings have higher valuations than low-growth companies. Nowadays, losses and value rise simultaneously because it is often the case that significant investments need to be made to experience growth. As companies expensed their assets, significant losses replaced growing balance sheets. Facebook experienced extreme growth. To value Facebook inc, the DCF approach has to be applied. As high-growth companies are dif ferent from other companies regarding valuation, we must start from the future and work backward. Companies like Facebook lack certainty , so different scenarios must be made to prepare for dif ferent outcomes. This does not reduce companies’ volatility , but we still would have some understanding as to the future of the company . Refer ence 1. Facebook. (2020). 2019 Sustainability Report. https://sustainability .fb.com/wp content/uploads/2020/12/FB_Sustainability-Report-2019.pdf 2. McNeill, P . (2006). Research methods. Routledge. 3. W alliman, N. (2010). Research methods: The basics. Routledge. 4. W iles, R., Crow , G., Heath, S., & Charles, V. (2008). The management of confidentiality and anonymity in social research. International journal of social research methodology , 1 1(5),417-428 5. Published by Statista Research Department, & 18, F . (2022, February 18). Facebook: Annual r evenue . Statista. Retrieved May 24, 2022, from https://www .statista.com/statistics/268604/annual-revenue-of-facebook/#:~:text=In%202 021%2C%20Meta’s%20(formerly%20Facebook,in%20the%20previous%20fiscal%20yea r . 6. Collins, G. (2022, March 10). Facebook stock for ecast 2022: Facebook price pr edictions buy sell ratings . Housing Market and Stock Market Forecasts. Retrieved May 24, 2022, from https://gordcollins.com/stock-market/facebook-stock-forecast/ 7. Richter , F. (2021, February 4). Infographic: Facebook keeps on gr owing . Statista Infographics. Retrieved May 24, 2022, from https://www .statista.com/chart/10047/facebooks-monthly-active-users/ 8. Meta platforms EBITDA 2010-2022: FB . Macrotrends. (n.d.). Retrieved May 24, 2022, from https://www .macrotrends.net/stocks/charts/FB/meta-platforms/ebitda 9. Insider Intelligence. (2021, October 18). US Facebook Social Commer ce Buyers, 2019-2025 (millions, % change, and % of Facebook users) . Insider Intelligence. Retrieved May 24, 2022, from https://www .emarketer.com/chart/251745/us-facebook-social-commerce-buyers-2019-20 25-millions-change-of-facebook-users 10. Meta platforms EBITDA 2010-2022: FB . Macrotrends. (n.d.). Retrieved May 24, 2022, from https://www .macrotrends.net/stocks/charts/FB/meta-platforms/ebitda#:~:text=Meta%20Pl atforms%20EBITDA%20for%20the,a%2038.42%25%20increase%20from%202020.
Write a one page executive summary on the FB file
Executive SummaryAn Executive Summary is a separate document from the main body of your document and must stand alone on its merits. It may be the only page from your report that gets read by top management — so it must be able to “make the case” for your recommendation or proposal. The Executive Summary: 1. Summarizes the main points of a longer document (e.g., a business plan or proposal) and presents the essential issues in the paper: main points, analysis and recommendations. It is NOT an introduction, which would tell what you intend to analyze, not what you found from your analysis. If you are writing ” this paper will….,” then you are writing an introduction and not an executive summary! 2. Establishes the need or states the problem; recommends the solution and explains the value of the solution (why the reader should care); provides logical substantiation (your analysis!) for how you arrived at your recommendation.3. Is written in text, not a bullet-point outline (quality of analyses cannot be shown through bullet points, which lack integrative logical connections among the bullet pointed ideas or data)4. Should be one page or at most two pages for longer documents. No cut-and-pasting from the main document. Write from scratch so you are not tempted to provide unnecessary details. Always proofread the executive summary — Ask people who haven’t read the main document to read the summary and comment on it — does it present the idea? Does it show the value? Does it “make the case” for your recommendation or proposal through clear logic based on sound data?If you wish to explore further, this link is a sample of best resources for how to write a top-notch Executive summary: http://www.csun.edu/~vcecn006/summary.html EXECUTIVE SUMMARIES COMPLETE THE REPORT In A Nutshell “Few writers think of the messages they are trying to communicate in a report.” –Bruce Ross-Larson, Riveting Reports, p. 30 CONTENTS Executive Summaries Provide the Essence Abstracts Differ from Executive Summaries Executive Summaries Are Called Different Names Executive Summaries Briefly Cover Every Main Section Proportionate Space Is Devoted to Executive Summaries Executive Summaries Provide the Essence Executive summaries complete the report, whether an analytical report memo or whatever. Executive summaries are the parts of the reports that are read first. Readers may not even get to the detail in your report. They read the executive summaries to see if the rest of the report is worth reading. Executive Summaries Are Called Different Names Executive summaries go by so many different names. Sometimes the executive summary is called an Abstract. You usually find that designation in scientific papers and academic efforts. You can also call the Executive Summary simply a Summary. If you call the Executive Summary a precis, you are probably misnaming it. A precis is usually a sentence summary. Abstracts Differ from Executive Summaries Abstracts differ from executive summaries, because abstracts are usually written for a scientific or academic purpose. You see abstracts related to scientific lab reports. You see abstracts related to databases, where a summary or abstract of the article is given. Abstracts, according to Janis Ramey in “How to Write a Useful Abstract,” fall into this kind of structure: First, prepare a topic sentence that encompasses the entire article or whatever you are summarizing. Next, prepare two or three subordinate sentences that support your main idea or topic sentence. Then, tie everything together with transition and logic. That is a well-written abstract. You say what you have to say, and stop. Executive Summaries Briefly Cover Every Main Section In this class we are going to include the Introduction (Issue, Purpose, Scope and Limitations, and Alternatives), Significant Considerations, Analysis and Decisions in the executive summary. The executive summary will probably be one or one and one-half pages by the time you finish writing. The executive summary will appear after the transmittal memo and just before the first page of the analytical report memo. In the executive summary you will probably want to put the Issue (Problem) and Purpose in the first paragraph. The Scope and Limitations as well as the Alternatives (Procedures) will go in the next paragraphs. The Significant Considerations, Analysis, and Decisions will comprise the final paragraphs. Normally, your executive summary (with double spacing) will run about one to one-half pages of copy. You should make sure you only put in significant Considerations, Analysis, and Decisions.
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