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"Team A" final presentation for Consulting Skills & Frameworks, Fall 2012. Product pitch: "Facebook Stream" - a web browser from Facebook allowing users to seamlessly browse the web while enjoying the tools of Facebook. Stream also allows Facebook to collect unique data about users to offer more relevant and targeted ads, promotions, and information.
Citation preview
1
Facebook Stream
Team A: Erin Gibson, Zack Hargett, Lexi Jankun, Reed Romine, Mary Catherine Wilkison
November 29, 2012
Increasing market value through company acquisition and revenue growth
2
Grow Facebook revenue by expanding into a social networking web browser
By year 5, exceed analyst-projected revenue by $1.26B to achieve 20% increase in market value
Executive Summary
AcquireRockMelt
EstablishStrategic Partnerships
AdaptStream to Mobile Platform
• Integrate software
• Become first social network browser
• Partner with bing as default search engine
• Incorporate apps & ads to drive revenue
• Engage mobile-only users
• Enhance experience by linking detailed user data
Acquire3
Facebook must increase market value by growing revenue through a social network web browser
Cutting cost is not a viable option
Opportunity for revenue growth via
Web browsers
Leverage network to enhance customized
experience
• Customer expansion• Capital Investments• Advertisement
1 Billion Facebook users
Cost Synergies
Revenue Growth
$30.59 0.00% 1.00% 2.00% 3.00% 4.00%
0% $25.43 $27.85$30.59$33.67$37.15
5% $25.99 $28.48$31.29$34.45$38.02
10% $26.54 $29.10$31.98$35.23$38.90
15% $27.10 $29.72$32.68$36.01$39.77
20% $27.66 $30.35$33.38$36.79$40.64
25% $28.22 $30.97$34.08$37.58$41.52
30% $28.77 $31.59$34.77$38.36$42.39
Source: M&A Valuation Model
Acquire4
Facebook Stream will leverage Facebook user information through “Likes” & browsing history to customize experience
Source: Team Analysis; New York Times
Data on User Preferences
Data
on U
ser
His
tory
Note: Size of plot denotes number of users
Google Chrome• 310 MM users • Data through cookies
Facebook• 1 B users• Data through demographic questions
& Likes
Facebook Stream• Estimated 80 MM users in Y1• Data though cookies, Likes, &
demographic questions
Google +• 25 MM users• Data through demographic
questions & limited cookies
RockMelt• 1.2 MM users• Data through limited cookies &
demographic questions
Acquire5
Facebook Stream combines chat, notifications and web browsing to enhance user experience
Source: RockMelt Browser
Acquire6
Facebook Stream combines chat, notifications and web browsing to enhance user experience
Source: RockMelt Browser
Acquire7
Facebook Stream combines chat, notifications and web browsing to enhance user experience
Source: RockMelt Browser
Acquire8
Facebook Stream combines chat, notifications and web browsing to enhance user experience
Source: RockMelt Browser
Acquire9
Organic Devel-opment
Acquiring Rockmelt
$105
$110
$115
$120
$125
$130
We
b B
row
se
r S
tart
-up
Co
sts
Facebook will take advantage of cost and time efficiencies by acquiring RockMelt to create Facebook Stream
COST SAVINGS
cost savings
Acquisition of RockMelt provides for $6MM in cost savings and 2 years time savings in the
launching of Stream
$6MM
TIME SAVINGS
time savings1 YearAssimilation Costs
M&A FeesStand-Alone Value
* In Million $USDQ1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
DevelopmentNegotiationsStream Launch
Due DiligenceAdaptions to FB StreamStream Launch
2013 2014
Source: Team Analysis
Establish10
* In Million $USD
Strategic Partnership with Microsoft’s bing will earn Facebook Stream revenues of $105M
05 06 07 08 09 10 110
20
40
60
80
100
120
140
160
105
Revenue
Mozilla revenue from Google search deal
Jul.
08
Oct
. 08
Jan.
09
Apr
. 09
Jul.
09
Oct
. 09
Jan.
10
Apr
. 10
Jul.
10
Oct
. 10
Jan.
11
Apr
. 11
Jul.
11
0%
20%
40%
60%
80%
100%
Web Browser Market Share
Internet Explorer Firefox Chrome Other
Microsoft will partner with
FacebookContinue
relationship with Mozilla
Completely reliant on
search traffic
Competing Web
Browsers
Leaving would cause loss of traffic
& money
$Case Study
Google/Mozilla
Source: Extremetech; Computerworld; 25labs
Establish
Stream + “Facebook Bay” External Ad Network + Partnerships will position Facebook to compete with Google
11
Facebook Google
Social Network
Web Browser
Ad Network
Search Engine
Stream
Facebook Bay
bing
Google +
Chrome
AdSense
Facebook Bay external ads
target Stream users based on
“Likes” AND user history
(cookies)
Establish12
Developing partnerships with key businesses could increase user engagement and generate $101MM in revenue
Paid35%
Free65%
By Year 5, Facebook will generating $101.07MM per year by offering paid applications to Stream users
Y1 Y2 Y3 Y4 Y5 $-
$50
$100
$150 $101
Revenue from Apps
0% 20%
40%
60%
80%
100%
App Developer
Pri
ce
Bre
akdow
nApp. Store
Facebook gain 5% of Paid App. Revenue
* In Million $USD
Source: Thechromesource; Team Analysis
Adapt13
Expanding Facebook’s browser to the mobile platform will improve ability to customize Stream to user preferences
1 Billion
600 MM
113 MM
Facebook users
Facebook mobile-only users
Facebook desktop & mobile users
Facebook Stream Mobile can always be with you, on the go
Placement Targeting
Desktop (News Feed + Side Bar)
Desktop News Feed
Mobile News Feed
1
2
3
Desktop (News Feed + Sidebar)
Desktop News Feed
Mobile News Feed
$0.00 $0.10 $0.20 $0.30 $0.40 $0.50 $0.60 $0.70 $0.80 $0.90 $1.00
0.00%
0.20%
0.40%
0.60%
0.80%
1.00%
1.20%
1
2
3
Cost per ClickClick through Rate
Source: TechCrunchSource: SEC.gov
Impact14
With 410 MM users adopting Stream by 2017, Facebook will generate $11.9B in 2017
2013 2014 2015 2016 2017$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$10,645
$11,908
Tota
l Face
book R
evenue
Str
eam
Revenue
Increasing trend of Stream Adopters Among Facebook
Users
2013 2014 2015 2016 20170
200400600800
100012001400160018002000
Million U
sers
Current Revenue ProjectionProjected Revenue with SteamAdditional Revenue from Stream
Non-Stream AdoptersStream Adopters
Revenue of $11.9B in 2017
* In Million $USD
410
Source: Team Analysis
Impact15
2013 2014 2015 2016 2017$0.00
$200.00
$400.00
$600.00
$800.00
$1,000.00
$1,200.00
$1,400.00
$25.00
$26.00
$27.00
$28.00
$29.00
$30.00
$31.00
Addit
ional R
evenue f
rom
Str
eam
Facebook S
tock P
rice
Facebook Stream will result in $1.26B added revenue in 2017, achieving a stock price of $30.63
bing RoyaltiesOther Search Engine RoyaltiesApp. PurchasesAdvertisements
* In Million $USD
In bing Royalties
In Other Search Engine
Royalties
In App. Purchases
In Advertisement
$190.7MM $30.7MM $101MM $940.9MM
$26.96
$28.02
$28.96
$29.83
$30.63
2017:
Source: Team Analysis; See Financial Appendix
Impact16
Risk & Mitigation
Risk Rating Risk Mitigation Strategy
Rockmelt will not allow Facebook to acquire
Leverage ability to discontinue current partnership and pursue acquisition of similar companies.
Insufficient customer demand for Facebook browser
Implement aggressive marketing campaign to raise user awareness
Uncertainty surrounding bing partnership acceptance
Seek partnership with Yahoo! or other search engineX
X
Probability
Impact
X
Source: Team Analysis
17
Grow Facebook revenue by expanding into a social networking web browser
By year 5, exceed analyst-projected revenue by $1.26B to achieve 20% increase in market value
Executive Summary
AcquireRockMelt
EstablishStrategic Partnerships
AdaptStream to Mobile Platform
• Integrate software
• Become first social network browser
• Partner with bing as default search engine
• Incorporate apps & ads to drive revenue
• Engage mobile-only users
• Enhance experience by linking detailed user data
General Introduction to Team A Analysis of alternative ideas
Due Diligence - RockMelt Key leaders (Management) Key Investors Milestones
Social Networking Marketing Industry Data Facebook Market Share of Social Networks Growth Strategies LinkedIn Revenue Streams
Search Engine Industry Analysis Microsoft Facebook Partnership Search Engine Industry Market Shares Search Engine Financials (1, 2) Web Browser Market Shares Advantages of Chrome
Marketing Plan Target Market
Marketing Examples (1, 2)
Finance Costs
◦ Developing web browser◦ Acquiring RockMelt◦ Conversion costs
Valuation of RockMelt Valuation of Facebook’s Current Stock Price Cost vs. Revenue Sensitivity Team Income Statement Analysis (1,2) Facebook Annual Income Statement Advertising Revenue Applications Revenue Stock Price Growth with Total Revenue Royalties from Search Engines Comparables
◦ Google Chrome Adoption Rate◦ Flash Player Adoption Rate
Mobile Growth of Facebook Users Facebook Ads on Various Media Facebook Mobile Only Users
Appendix:
19
Erin Gibson
• B.S. in Business Administration
• Double Major in Spanish
Zack Hargett
• B.S. in Business Administration
• Concentration: Consulting
Reed Romine
• B.S. in Business Administration
• Concentration: Consulting
Mary Catherine Wilkison
• B.S. in Business Administration
• Concentration: Finance and Consulting
• Minor in French
Lexi Jankun
• B.S. in Business Administration
• Concentration: Consulting
• Double Major in Spanish
20
Analysis of alternative ideas for increasing market value
Alternative Capital Investment
Feasibility Long-term impact
Value to customers
Value to users
Buy Twitter
Monetize Mobile App
Organic browser development
Create professional
network
Acquire RockMelt
Source: Team Analysis
21
Eric Vishria, age:48Chief Executive Officer
Formerly VP of Marketing, Opsware (later acquiredby Hewlett-Packard for $1.65 BB). B.S., Stanford University
Tim Howes, age:52Chief Technology Officer
Previously developed Netscape browser; considereda global leader in software engineering.Ph.D., University of Michigan
Key members of RockMelt management team ensure company is a relatively safe investment
Source: RockMelt.com; Crunchbase
22
Marc AndreessenInvestor
Currently sits on Board of Directors for Facebook.
Ben Howowitz Investor
Former co-founder and CEO of Opsware (acquired by HP); VP of Business Technology Optimization for Software at HP.
RockMelt has solid capital backing, including one current Facebook Board member
Source: RockMelt.com; Crunchbase
23
Established company with leading
management team
Raises $40 MM from top Tech VC firms
Rockmelt for iPad launches
November 2010 June 2011 October 2012
Key milestones in RockMelt history indicate its status as an early-stage, but promising, start-up
Source: RockMelt.com
24
Social Networking industry data
Source: IBISWorld, Social Networking Industry Report
25
Facebook has 60.7% of market share and over 845 million users
Source: IBISWorld, Social Networking Industry Report
26
Growth strategies
Source: IBISWorld, Social Networking Industry Report
27
Q3 2011 Q3 20120
50
100
150
200
250
300
LinkedIn Revenue from Monetized Solutions
Premium SubscriptionsMarketing So-lutionsTalent Solu-tions
Revenue
Million
s o
f D
ollarsLinkedIn had 90
million users at the end of 2011; the company nowhas 187 million
users
Due to an increase in the number of users, LinkedIn has generated more revenue from monetized solutions
Source: Forbes.com
28
Facebook Microsoft’s Bing
• In 2007, Microsoft spent $240 MM for a 1.6% stake in Facebook• In 2010, Microsoft’s bing and Facebook teamed up for a “social search”
Source: Forbes: Microsoft Adds New Friends to Revamped Bing Search Service
Why Facebook should partner with Microsoft’s Bing
29
Search Engine industry statistics
Source: IBISWorld, Search Engine Industry Report
30
Search engine financials
Source: IBISWorld, Search Engine Industry Report
31
Search engine financial (cont’d)
Source: IBISWorld, Search Engine Industry Report
32
Web Browser market share
Source: 25labs
33
Able to identify security concerns on individual tabs and prevent from spreading elsewhere (Sandboxing- process isolation)
Javascript virtual machineEffective limiting of memory useUse of history to enable quick access to
most visited sitesCompatible with APPLICATIONSPlugIns separated into its own process
Advantages of Chrome
Source: Google Chrome
34
18-24 25-34 35-44 45-54 55-64 65+0
50
100
150
200
250
300
350
Mean # of friends on main networkMedian # of friends on main network
Age Groups
Social Network marketing would be most effective if targeted towards Millennials
Source: Mintel Oxygen: Overview of Social Networking
35
New! Try Facebook Stream today
310 MM unique daily visitors
3% download from home page
9 MM downloads
Simply placing advertisement on Facebook home page may yield substantial downloads
Source: Pingdom.com
36
Facebook Stream has arrived! Take this tour to learn about the all new Facebook oriented web browser, then download the browser for free!
Worldwide Facebook update will publicize Stream to all 1B Facebook users
Source: Team Analysis
37
• Effort Applied (E) = ab(KLOC)bb [man months]
• Development Time (D) = cb(Effort Applied)db [months]
• People required (P) = Effort Applied / Development Time [count]
Basic Constructive Cost Model
• Software project (Classified as “semi-detached”)• ab = 3.0• bb = 1.12• cb = 2.5• Db = 0.35
Assumptions
• Codebase Size: 6,449,950 lines• Estimated Effort:1,952 person-years• Average Employee Salary: $65,000
Inputs
Estimated Organic Development Costs: $127 MM
Estimated cost of developing a web browser…
Source: Team Analysis
38
• $114.29 MMRockMelt Valuation
• $1.5 MM in total acquisition feesAssumptions
• $5.2 MMDevelopment/
Conversion Costs
Estimated Acquisition + Development Costs: $121 MM
…is more than cost of acquiring RockMelt
Source: Team Analysis
39
160 Employees on project$60,000 avg. salary
6 month duration of conversion
$5.2 MM Total Conversion Cost
Assumptions
Breakdown of conversion costs
Source: Team Analysis
40
$40 MM total
35% sold in equity
$114.29 MM
Assumption
Valuation
VC Fundingraised
Breakdown of RockMelt valuation
Source: Rockmelt.com
41
Valuation of Facebook’s current Stock Price
Source: Yahoo! Finance, Google Finance; M&A Valuation Model; SEC Facebook Inc. Form 10-Q
42
Cost vs. Revenue Sensitivity test to gain 20% increase in stock price
Projected 5 year Revenue according to current Yahoo! Analyst estimates
Revenue with added 2% increase over analyst estimates
2012 2013 2014 2015 2016 2017
4,756.7 5,804.8 6,916.6 8,093.4 9,335.9 10,645.0
2012 2013 2014 2015 2016 2017
4,756.7 6,025.9 7,315.6 8,721.7 10,250.5 11,908.4
Source: Yahoo! Finance, Google Finance, M&A Valuation Model
43
Current Profit & Loss of Facebook 2013 2014 2015 2016 2017
RevenueZynga $696.58 $830.00 $971.20 $1,120.31 $1,277.40Advertisements $5,108.24 $6,086.64 $7,122.16 $8,215.62 $9,367.58Total Revenue $5,805 $6,917 $8,093 $9,336 $10,645
Cost & ExpensesCost of revenue 860.00$ 1,032.00$ 1,238.40$ 1,486.08$ 1,783.30$ R&D 388.00$ 504.40$ 655.72$ 852.44$ 1,108.17$ General and administrative 707.00$ 777.70$ 855.47$ 941.02$ 1,035.12$ Total costs & expenses 1,955.00$ 2,314.10$ 2,749.59$ 3,279.53$ 3,926.58$
Gross Profit $3,849.82 $4,602.53 $5,343.77 $6,056.40 $6,718.40
Addl. Profit & Loss from Streammillions 2013 2014 2015 2016 2017
Addl. RevenueBing Royalties $105.00 $111.43 $128.57 $167.14 $190.71Other Search Engine Royalties $18.53 $19.60 $22.21 $27.34 $30.72App. Purchases $13.27 $27.93 $50.27 $73.17 $101.07Advertisements $84.32 $239.99 $427.28 $646.97 $940.89Total Revenue $221 $399 $628 $915 $1,263
Income Statement for Current Yahoo! Analyst estimates and addl. Revenue
Source: Yahoo! Finance, Google Finance; M&A Valuation Model; SEC Facebook Inc. Form 10-Q
44
Total Profit & Loss of Facebook with Stream Browser2013 2014 2015 2016 2017
RevenueZynga $696.58 $830.00 $971.20 $1,120.31 $1,277.40Bing Royalties $105.00 $111.43 $128.57 $167.14 $190.71Other Search Engine Royalties $18.53 $19.60 $22.21 $27.34 $30.72App. Purchases $13.27 $27.93 $50.27 $73.17 $101.07Advertisements $5,192.56 $5,036.99 $6,143.32 $7,333.73 $8,650.65Total Revenue $6,026 $7,316 $8,722 $10,251 $11,908
Cost & ExpensesCost of revenue 860.00$ 1,032.00$ 1,238.40$ 1,486.08$ 1,783.30$ R&D 388.00$ 504.40$ 655.72$ 852.44$ 1,108.17$ General and administrative 707.00$ 777.70$ 855.47$ 941.02$ 1,035.12$ Total costs & expenses 1,955.00$ 2,314.10$ 2,749.59$ 3,279.53$ 3,926.58$
Gross Profit $4,070.94 $5,001.48 $5,972.10 $6,971.01 $7,981.78Percent Growth over last year 23% 19% 17% 14%
Income Statement for Facebook with addition of Stream
Source: Yahoo! Finance, Google Finance; M&A Valuation Model; SEC Facebook Inc. Form 10-Q
45
Facebook Annual Income Statement and expense assumptions
In Millions of USD (except for per share items)12 months
ending 2011-12-31
12 months ending 2010-12-
31
12 months ending 2009-
12-31
12 months ending 2008-12-
31
Asssumed Growth
Revenue 3,711.00 1,974.00 777 272
Other Revenue, Total - - - -
Total Revenue 3,711.00 1,974.00 777 272
Cost of Revenue, Total 860 493 223 124
Percentage growth 74.44% 121.08% 79.84% 20.00%Gross Profit 2,851.00 1,481.00 554 148
Selling/General/Admin. Expenses, Total 707 305 205 156
Percentage growth 132% 49% 31% 10.00%Research & Development 388 144 87 47
Percentage growth 169.44% 65.52% 85.11% 30.00%Depreciation/Amortization - - - -
Interest Expense(Income) - Net Operating - - - -
Unusual Expense (Income) - - - -
Other Operating Expenses, Total - - - -
Total Operating Expense 1,955.00 942 515 327
Operating Income 1,756.00 1,032.00 262 -55
Interest Income(Expense), Net Non-Operating - - - -
Gain (Loss) on Sale of Assets - - - -
Other, Net 10 -1 2 -1
Income Before Tax 1,695.00 1,008.00 254 -56
Source: Yahoo! Finance, Google Finance; M&A Valuation Model; SEC Facebook Inc. Form 10-Q
46
Google2012 2013 2014 2015 2016 2017 2018
Revenue $8,580 10,733.58$ 11,701.75$ 12,757.25$ 13,907.95$ 15,162.45$ 16,530.10$ Advertisements $8,323 $10,412 $11,351 $12,375 $13,491 $14,708 $16,034
Facebook2012 2013 2014 2015 2016 2017 2018
Revenue $5,804.82 7,546.27$ 8,323.53$ 9,180.86$ 10,126.48$ 11,169.51$ 12,319.97$ Advertisements* $4,934.10 $6,414.33 $7,075.00 $7,803.73 $8,607.51 $9,494.09 $10,471.98
Stream2012 2013 2014 2015 2016 2017
Revenue $221.12 $398.94 $628.33 $914.62 $1,263.39Advertisements $84.32 $239.99 $427.28 $646.97 $940.89 0
Percent Revenue from Ad. 38% 60% 68% 71% 74%Revenue growth based on yahoo! Estimates
Advertising Revenue
Source: The Verge
47
* three months ended September 30, 2012
Google2012 2013 2014 2015 2016 2017 2018
Revenue 11,526.00$ 14,419.03$ 15,719.62$ 17,137.53$ 18,683.34$ 20,368.57$ 22,205.82$ Applications $173 $216 $236 $257 $280 $306 $333
Stream2012 2013 2014 2015 2016 2017
Revenue $221.12 $398.94 $628.33 $914.62 $1,263.39Application $13.27 $27.93 $50.27 $73.17 $101.07 *based on Google chrome, account for time taken to penetrate market
Percent Total Revenue 6% 7% 8% 8% 8%
Revenue growth based on yahoo! EstimatesNext Year Next 5 Years
Google 25.10% 9.02%Facebook 30% 10.30%
Applications Revenue
*based on Google chrome, account for time taken to penetrate market
Source: Yahoo! Finance, Google Finance; M&A Valuation Model; SEC Facebook Inc. Form 10-Q
48
Stock Price Growth with Total Revenue
2012 2013 2014 2015 2016 20170
2000
4000
6000
8000
10000
12000
14000
$23.00
$24.00
$25.00
$26.00
$27.00
$28.00
$29.00
$30.00
$31.00
$32.00
RevenueStock Price
Source: M&A Valuation Model; Team Analysis
49
Revenue 2012 2013 2014 2015 2016 2017Bing $105 111.43$ 128.57$ 167.14$ 190.71$ 225.00$ Other Search Engines $18.53 19.59842 22.21154 27.33728 30.71604 35.39658
Royalties from Search Engines
Mozilla Revenue from Search Royalties2005 2006 2007 2008 2009 2010 2011
Revenue from Google Search Royalties $49 $52 $60 $78 $89 $105 $138Growth From Previous Year 6.12% 15.38% 30.00% 14.10% 17.98% 31.05%
Revenue from other search engines $57.65 $61.18 $70.59 $91.76 $104.71 $123.53 $161.88Growth From Previous Year 5.77% 13.33% 23.08% 12.36% 15.24% 23.69%
Stream Revenue
Based on Mozilla Revenue
Source: Computer World
50
Source: The developer’s guide to browser adoption rates
Google Chrome adoption rate
51
Source: The developer’s guide to browser adoption rates
Flash Player adoption rate
52
Current growth rate: 5.54%
Source: 1 Billion Facebook Users: Now or Later, Technorati
Growth of Facebook users
53
Source: Tech Crunch
Facebook Advertisements on various media
54
Assumption on number of Facebook mobile-only users
Source: Team Analysis