For Immediate Release
Chicago, IL –July 27, 2012 – Today, Zacks Investment Ideas feature highlights Features: Facebook (FB - Analyst Report).
Facebook Model Part III
I have written two articles about modeling out Facebook (FB - Analyst Report). The first one walked your through the basics of how to build the model. The basics were mostly concerned with using the metrics to come to a revenue estimate. The second focused on how a few bulge bracket brokerages models look to give you a benchmark or a guideline. These ideas were again just speaking to the topline.
With the company reporting after Thursday's close, I thought we should get the rest of the model up to speed.
Where we left off
Right now, our model should have an income statement tab, a revenue tab and tabs for each of the four geographies that Facebook will report on. The next step is to add in the rest of the operating expenses and do some math and we should get an EPS estimate.
Go ahead and create tabs for Cost of Revenue, Marketing and Sales, R&D, G&A and Stock Based Compensation. Each expense line item needs its own tab to help give a clear view of how they relate to revenue. It also gives us the flexibility to add in data points that may be revealed on the call.
Cost of Revenue (COR) is a pretty simple one to address. What I do it take the Income statement that we have already built and copy and paste it into the COR tab. I have my historical numbers from the most recently field S-1 or maybe you could "borrow" them from another model. COR is basically the transaction costs that are charged to the company in the process of collecting the revenue. Most of the time they are related to credit card and processing fees.
I take the historical numbers and take a look at them as a percent of revenue. I do a simple equation for all three revenue line items (Advertising, Payments and Total). This gives me a trend of the percentage of revenue that COR has been. Next I will simply map out the sequential growth of COR. I will put the sequential growth of revenue directly under that to see how each move in tandem. Finally I will look at annual growth of COR and compare that to revenue.
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