Intrinsic Value DCF Model 1 Free Cash Flow

Intrinsic Value - DCF Model 1. Free Cash Flow estimation Average 3 years Last 12 months Projection period(2018 -2022) 43% 32% Starting at 35% in 2018, decrease 5% annually 13. 5% 13% 12% R&D/Sale 23% 20% SG&A/Sale 20% 19% Effective Tax rate 26% 18% Depreciation & Amortization/Sale 9% 8% 8% SBC/Operating expense 22% 20% 22%* Assumptions Income statement Revenue growth COGS/Sale * In Q 3 2017, FB CEO announced that FB will keep making sizable security investment in people to pursue long-term growth

Intrinsic Value - DCF Model (Continued) 1. Free Cash Flow estimation (Continued) Assumptions Average 3 years Last 12 months Projection period(2018 -2022) %AR/Sale 14% 14% %Other current asset/Sale 4% 5% 4% %AP/COGS 15% 15% %Other current liability/Sale 8% 8% 8% 17% 19% 17% Balance sheet Working capital Capital expenditure %Capital expenditure/Sale* * In Q 3 2017, FB CEO announced that FB will invest substantially in technology infrastructure (augmented and virtual reality, AI, and connectivity) to support long-term growth. The estimated capital expenditure amount is $7 b (19% of sale) and $14 b (28% of sale) in 2017 and 2018, respectively.

Intrinsic Value - DCF Model (Continued) 1. Free Cash Flow estimation (Continued) Year Annual Free Cash Flow ( million of US dollar) 2017 14, 382 2018 14, 423 0. 28% 2019 26, 030 80% 2020 32, 704 26% 2021 39, 480 21% 2022 45, 712 16% 2023 -2032 2033 -infinity Growth rate Annual decrease by 1. 28% (= (16%-3%)/10) 105, 184 3%

Intrinsic Value - DCF Model (Continued) 2. WACC estimation WACC = r. D (1 - Tc )*( D / V )+ r E *( E / V ) • No debt ----> WACC = r. E • r. E= Rf + Beta * (Rm - Rf) +Rm= Expected market return based on S&P 500 +Risk free rate= 10 -year Treasury bond interest rate # 1 2 3 4 Scenario Beta FB from the first public date, Weekly, Bloomberg-S&P 500 Beta FB from the first public date, Weekly, Bloomberg-NASDAQ 100 Beta 2 advertising companies have High sale growth rate Median beta for advertising company for 10 years, weekly Beta Expected market return Risk free rate Discount rate 0. 8 9. 245% 2. 36% 7. 9% 0. 96 9. 245% 2. 36% 9. 0% 1. 08 9. 245% 2. 36% 9. 8% 1. 2 9. 245% 2. 36% 10. 6% To be conservative, we chose the discount rate =11%

Intrinsic Value - DCF Model (Continued) 3. Estimated stock price No Preferred stock or debt ---> Enterprise value estimation = Equity value estimation • Equity value estimation= 661, 488 (million dollar) • Number of diluted shares= 2, 956 (million shares) • Predicted stock price= $ 224 >Actual price=$177 Facebook stock price is undervalued

Intrinsic Value - DCF Model (Continued) 4. Sensitivity Analysis a. Changes in discounted rate Scenario 1 2 3 Discounted rate 11% 12% 13% Expected Price 224 203 184 Actual Price 177 177 Facebook stock price is undervalued

Intrinsic Value - DCF Model (Continued) 4. Sensitivity Analysis (Continued) b. Changes in revenue growth rate Year 2018 2019 2020 2021 2022 2023 -2032 Terminal growth Predicted price S 1 35% 30% 25% 20% 15% Annual Decrease by 1. 2% 3% 224 S 2 30% 25% 20% 15% Annual decrease by 1. 2% 3% 207 S 3 30% 25% 20% 15% Annual decrease by 1. 2% 3% 176 Facebook stock price is undervalued