Zacks Investment Ideas feature highlights: Facebook, Morgan Stanley, Goldman Sachs, JPMorgan Chase and salesForce.com.

 Zacks Investment Ideas feature highlights: Facebook, Morgan Stanley, Goldman
                  Sachs, JPMorgan Chase and salesForce.com.

PR Newswire

CHICAGO, July 2, 2012

CHICAGO, July 2, 2012 /PRNewswire/ -- Today, Zacks Investment Ideas feature
highlights Features: Facebook (Nasdaq:FB), Morgan Stanley (NYSE:MS), Goldman
Sachs (NYSE:GS), JPMorgan Chase (NYSE:JPM) and salesForce.com (NYSE:CRM).

(Logo: http://photos.prnewswire.com/prnh/20101027/ZIRLOGO)

Facebook Model, Part II

Prior to the Facebook (Nasdaq:FB) IPO I wrote an investment idea on how to
make a model of the Facebook Income Statement. I left that article pretty wide
open just walking through the skeleton of how a sell side analyst would get
the topline estimates. Since that time the IPO flopped and the stock traded
substantially lower.

The quiet period is over for the dozens of investment banks that were
co-managers of the IPO so the research analyst can now publish their reports.
The leads on the IPO were Morgan Stanley (NYSE:MS), Goldman Sachs (NYSE:GS)
and JPMorgan Chase (NYSE:JPM). Would it surprise you to learn that those three
"book runners" have the highest price targets on the stock?

Price targets aside, let's look at a few of the reports and their models and
compare and contrast the key moving parts of each.

The Goldman Report

Goldman Sachs has two top analysts covering Facebook. Heath Terry and Heather
Bellini. This was an oddity in that Bellini historically covers software names
like salesForce.com (NYSE:CRM). Her input is important though as she does
cover other major tech firms. Heath Terry is more of a traditional internet
analyst.

The 89 page report outlines the key drivers for the model. The first of which
is Users. They model out both Monthly Average Users (MAU) and Daily Average
Users (DAU) for each region. World Wide MAU's are projected to grow to 1.07
billion in 2012 to 1.3 billion in 2013 to 1.54 billion for 2014. That implies
growth that decelerates from 69% growth in 2010 to 39% in 2011 to 26% in 2012.
The rate of decline slows significantly for 2013 to 22%.

The next driver for the revenue model is ad impressions. The model includes
the idea that mobile has yet to be monetized. Ad impressions do not see the
same growth pattern as MAU's. Facebook saw a 41% growth in ad impressions in
2011 which is expected to slow to 23% in 2012 and then is expect to grow to
30% in 2013. It should be noted that the model is looking for very large
growth from Asia and Rest of the World segments as compared to the 14% North
American growth in 2013.

CPM's or cost per thousand is another key driver for the Facebook model. These
are the costs that advertisers are paying for exposure on the Facebook
network. Advertisers can designate specific geographies to market to, but in
total, the world wide CPM rate is expect to slow from 20% in 2011 to 3% in
2012 and 5% in 2013.

Those are the basics that drive Goldman model to revenue estimates of $4.852
billion in 2012 (31% growth rate from 2011) to $6.591 billion in 2013 (an
increase to 36% growth form 2012). Most will point to the incredible
deceleration of revenue growth from 2011 to 2012. In that year, revenue growth
is expected to slow from 88% to 31%.

The William Blair Model

The William Blair model is not quite as detailed but does offer a base care,
the bear case, the bull case and the aggressive case. The model is a top down
and easy to follow. The focus on MAU's multiplied by ad loads (ads per user)
to generate a total impressions served number. This is then multiplied by the
average CPM rate to derive revenue.

The bear case assumes MAU's decline from 150 million to 100 million in 2013
and 2014. The ad load is also project to decrease 5% each year but a 4% growth
in CPM's in 2013 and 2014.

The bull case sees some growth in MAU's, a flat ad load number and significant
increases in CPM's. The aggressive case is the bull case with the ad load
growing. The operating metrics and margins in the aggressive case are pretty
aggressive, but certainly not impossible. The idea behind this method of
analysis shows the leverage of the operating model, which, when greased
correctly, can have a serious impact.

Another Aspect

There are several models which follow the same functionality of both Goldman
Sachs and William Blair. One other report, from Raymond James analyst Aaron
Kessler, speaks to the significant monetization potential. The key attributes
that Facebook provides advertisers are 1) reach, 2) relevance, 3) social
context and 4) engagement.

Due to the scale and high amounts of shared information (user generated
content) on Facebook, the potential for greater wallet share among advertisers
is high. The Raymond James report goes a little deeper than others into those
ideas.

Now that you have (or may not yet) created your own Facebook model you have
some good "reality checks" and ideas from these large brokerage reports. As
you look at a possible investment in Facebook, you must determine are you
doing this for a trade (short time horizon) or an investment (at least one
year). Growth for Facebook is not a sure thing, but now you have a frame work
and guidance on how to look at the future of Facebook.

This means that this specific investment idea has now become a small series,
and I will be sure to continue the series after Facebook reports earnings in
the coming weeks.

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