Manage episode 292872388 series 2927024
00:14 Facebook's ad engine
02:00 Where does Facebook's growth in revenue come from?
02:36 First branch: Growth from users
04:43 MAU and Total Addressable Market
07:50 Inflation and user spending
08:40 Second branch: Facebook's growth from relevance
11:37 Third branch: Advertisers
14:41 Forecasting Facebook's growth
15:13 1. How many new users do you expect?
18:07 2. How much market share will Facebook grab from offline advertising?
20:45 3. What multiple will the business be worth in 10 years?
21:47 4. How much does ad relevance contribute to Facebook's growth?
This is my attempt at forecasting Facebook's growth in the next 10 years, and therefore it is a quantitative analysis. If you'd like to check the qualitative analysis, click here.
All of the factors above excluding the 4th result in Facebook's top line doubling in 10 years, a 7.2% CAGR. If we assume ad relevance will contribute to 10% of the growth, it becomes a 8% CAGR. I also don't see net margins contracting, so I expect this 8% CAGR to bleed down to Net Income and consequently stock price (capital gains). This growth is net of inflation, due to the business model being spending friendly as explained before.
But considering that EV/NI will contract at a -2% CAGR over 10 years (31x to 25x), it leaves us at a 5-6% pretax CAGR at the current price of 320$/share.
There's a ton of talk about AR/VR, and also a lot of investment. I value it at 0 for now and focus on the core. The same goes for payment revenues. We get those two for free.