Facebook Inc: The Initial Public Offering

Questions to be discussed in the report: 1. How does Facebook make money? What are the value drivers of its business? What is its comparative advantage relative to other social networking companies? 2. Why is Facebook going public? What is the planned use of proceeds from the offering? 3. What was going on in the U.S. IPO markets prior to Facebook’s offering? What has been the performance of recent IPOs? 4. What is the intrinsic value of a Facebook share? How does this valuation compare to the price talk from the underwriters? 5. As a potential shareholder, what are your concerns about Facebook or its stock offering? 6. What is your recommendation for the CXTechnology Fund? Please make sure that your report contains the following two sections: Section 1: Executive summary: This section should never exceed a single page. In this section, you should highlight the main takeaways of your analysis. This section should end with a couple of sentences discussing your overall recommendation. Section 2: Analysis: In this section, you can discuss your analysis and directly answer my questions. There is a 5-page (1.5 space) limit of text in this section. If you would like to provide tables or figures you can create an appendix at the end of this section. Tables and figures do not count toward the 5-page limit. You MUST show all of your calculations in the appendix. Please be prepared to produce the electronic Excel file in case I ask for it. There are two determinants of quality: (1) analysis and (2) recommendation. Before doing your analysis, please make sure that you fully understand the problem. This might not be trivial since in a typical case you will be provided an “ocean” of information and you might lose track. Moreover, often times a critical piece of information will not even be provided and as a result, you will either have to make a set of reasonable assumptions or get what you need by doing research. Once you clearly understand the problem, provide a thorough analysis. Regarding your recommendation, first make sure that you have one. In each case, you will be playing the role of a decision maker and you MUST make a decision. Playing safe with recommendation will cost you (e.g. never say things like “you do not know what to do” or “anything is possible”). Second, your recommendation must be internally consistent with your analysis.

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