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Bud Labitan
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I am an author of books related to the decision framing and optimizing processes of Buffett and Munger. These books are available at www.frips.com and: http://www.amazon.com/Bud-Labitan/e/B002D1ERT4 With integrity and patience, we can also earn superior profits by carefully evaluating facts and... More
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The Four Filters Invention of Warren Buffett and Charlie Munger
  • A Rough Estimation Of Facebook's Intrinsic Value 0 comments
    May 22, 2012 7:48 AM | about stocks: FB, BRK.A

    A Rough Estimation of Facebook's Intrinsic Value

    Does FB make for an intelligent investment or intelligent speculation today? Starting with a base estimate of annual Free Cash Flow at a value of approximately $950,000,000 and the number of shares outstanding at 2,140,000,000 shares; we used an assumed FCF annual growth of 15 percent for the first 10 years and assume zero growth from years 11 to 15. Review the Free Cash Flow record here:


    The resulting estimated intrinsic value per share (discounted back to the present) is approximately $11.14.

    Market Price = $34.03
    Intrinsic Value = $11.14 (estimated)

    I used a discount rate of 6.25% and the Moat appears to be narrow and shallow. The Moat can last as long as Google or Yahoo or Microsoft do not design a friendlier website. Once one of the big cloud providers designs a friendlier interface, the moat starts eroding.

    For example, if Google plus was easier to use, and it added features like a friendlier ebay style trading/barter/consulting it could take the lead. Thus far Google+ is too cumbersome and geeky to be useful. However, they are trying to make it better.

    Bud Labitan
    author of "The Four Filters Invention of Warren Buffett & Charlie Munger" and "Moats: The Competitive Advantages of Buffett & Munger Businesses"


    Disclosure: I am long BRK.A, BRK.B.

    Stocks: FB, BRK.A
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