EARNINGS

RECAP Facebook (FB)

January 28, 2016

4Q Broad Topline Acceleration on Buy

Better Margins Price Target: $125.00
Prior: $120.00

Our Reaction is Positive for Set Up in 2016 and Beyond; PT to

$125 from $120 Δ Key Drivers
To From
4Q: 3Q:
Advertising Revenues
66% 57%
What's Incremental To Our View
Peck’s Points. Facebook remains in prime position, in our view, to capitalize on ex FX growth of 66% YoY, +31% QoQ - ahead
of expectations of ~20%
the secular shifts to digital, mobile and video. We believe ad dollars will follow
2016 OpEx Guidance 45-55%
time spent and that with >1B daily visitors, improving targeting and analytics,
new ad units, and >20% of time spent on mobile, Facebook has a long runway. We estimate ~50% for 2016
4Q ad revenues of $5.64B accelerated to 66% growth YoY vs. 57% in 3Q as 4Q: 3Q:
Global ARPU
45% 38%
mobile continues to gain share, monetiztion rates improve and Instagram ramp
begins. We maintain our Buy rating; PT to $125 from $120 based 17x EV/ ARPU growth was 56% in US & Canada vs.
49%; Int'l accelerated; IG, FAN, targeting and
EBITDA and 30x PE or 0.5x EV/EBITDA/growth and <1x PEG. video drivers

4Q Positives. 1) ex-FX Ad revenue growth accelerated to ~66% YoY and

was +31% QoQ, above our our channel checks (+21-23%) and ahead of our Price (Jan. 27, 2016) $94.45
estimates. 2) MAU growth steady at 14% and DAUs grew 17% - improved 52-Wk Range $109.01-$74.44
across all geographies;3) Operating margin increased 270bps YoY to 60.3% Market Cap ($M) $270,410
with costs up 42% - but incremental margins improved vs. 3Q and 2Q to
ADTV 25,550,562
66%; 4) Operating expense guidance growth for 2016 of 45-55% calls for an
incremental $4B of investment and compares to 50% for 2015; and 5) ARPU Shares Out (M) 2,863.0
accelerated with US & Canada Ad ARPU +56% YoY (vs. +48% in 3Q) and Short Interest Ratio/% Of Float 1.1%
Global Ad ARPU +45% YoY ex-FX vs. 38% in 3Q 6) video viewing reached TR to Target 32.3%
100M hours per day across 500M average viewers – we see video discovery
and monetization as important levers going forward; and 7) >2.5M advertisers
and 50M SMBs on the platform; FAN reached over $1B gross revenues in 4Q. 5 Year EPS Growth 30.0%
Cash And Equivalents $18,834.0
4Q Items to Watch. 1) Ad load commentary of up “significantly” vs. 2 years ($M)
ago which was the original 5% comment remains a key issue for investors; 2) Enterprise Value ($M) $304,295.0
Opex cost range was in-line and capex slighly higher at $4-4.5B. Given scale
and performance, Facebook could opt to invest more; 3) IG and FAN could 2015A 2016E 2017E
be cannibalistic in the short run vs. additive long term; 4) Expectations remain Curr. Prior Curr. Prior
Revenue ($M)
high and investors may overestimate the timing, adoption and success new
1Q $3,543 $5,234 $4,969 --
products (like Instagram and Oculus). 2Q $4,042 $5,819 $5,669 --
3Q $4,501 $6,350 $6,223 --
4Q $5,841 $7,814 $7,468 --
Raising Estimates. We expect 1Q and FY2016 revenue/EBITDA/EPS of FY $17,927 $25,217 $24,330 $33,959 $32,462
$5.2B/$3.0B/$0.61, and $25.2B/$15.4B/$3.10. Our FY2017 revenue/EBITDA/ EV/Sales 17.0x 12.1x 9.0x
EPS estimates increase slightly to $33.9.3/$21B14.9B/$4.12. EPS Adjusted

Robert S. Peck, CFA Rodney A. Hull, CFA FY $2.28 $3.10 $2.93 $4.12 $3.80
P/E 41.4x 30.5x 22.9x
212-319-3917 212-303-4127
EBITDA ($M) Adjusted
robert.peck@suntrust.com rodney.hull@suntrust.com
FY $11,216 $15,430 $14,892 $20,993 $20,062
Matthew Thornton, CFA Kunal Madhukar, CFA EV/
27.1x 19.7x 14.5x
212-303-4141 212-303-4129 EBITDA
FYE Dec
matthew.thornton@suntrust.com Kunal.madhukar@suntrust.com
Sagar Vachhani
212-303-4143
sagar.vachhani@suntrust.com

SEE PAGE 6 FOR REQUIRED DISCLOSURE INFORMATION Page 1

Equity Research
Facebook

Core Growth Accelerates. Increasingly investors we speak with are focusing more on the inflection points for FB: Instagram
roll-out cadence (now above 400M MAUs); continued video adoption and standalone prospects, new targeting and analytics;
ecommerce, and new ad units (DPA and Lead Ads). We believe Facebook is delivering on all of these fronts. Further, investors
remain focused on the expense line for 2016 which the company guided to 45-55% vs. investor expectations of 45% or roughly
in-line. Lastly, Facebook has three additional scaled platforms (WhatsApp at ~1B, Messenger at 800M, and Search over 1.5B
per day) that remain unmonetized and could be potential drivers in the future.

Key Trends Table

FIGURE 1: FACEBOOK – KEY PERFORMANCE INDICATORS’ TRENDS TABLE

STRH Portfolio Manager Synopsis - Revenues & Metrics
4Q'13 1Q'14 2Q'14 3Q'14 4Q'14 1Q'15 2Q'15 3Q'15 4Q'15
MAUs -- Monthly Active Users 1,228 1,276 1,317 1,350 1,393 1,441 1,490 1,545 1,591
Y/Y % change 16% 15% 15% 14% 13% 13% 13% 14% 14% MAU growth and
engagement stable...
U.S. & Canada 201 202 204 206 208 210 213 217 219
Further, Instagram >400M,
Y/Y % change 4% 4% 3% 4% 3% 4% 4% 5% 5%
WhatsApp ~1B, and
DAUs -- Daily Active Users 757 802 829 864 890 936 968 1,007 1,038 Messenger >800M
Y/Y % change 22% 21% 19% 19% 18% 17% 17% 17% 17%
Engagement (DAU % of MAU) 62% 63% 63% 64% 64% 65% 65% 65% 65%
U.S.& Canada Engagement (DAU % of MAU) 73% 74% 75% 75% 75% 77% 77% 77% 77%

Mobile MAUs 945 1,008 1,070 1,124 1,189 1,248 1,314 1,385 1,442
Y/Y % change 39% 34% 31% 29% 26% 24% 23% 23% 21%
Mobile MAUs as % of Total MAUs 77% 79% 81% 83% 85% 87% 88% 90% 91%
Mobile DAUs 557 609 654 703 745 798 844 894 934 Mobile DAU growth 25% as
Y/Y % change 49% 43% 39% 39% 34% 31% 29% 27% 25% total approaches 1B
Mobile Engagement (DAU % of MAU) 59% 60% 61% 63% 63% 64% 64% 65% 65%

Advertising Revenue $2,344 $2,265 $2,676 $2,957 $3,594 $3,317 $3,827 $4,299 $5,637
Y/Y % change 76% 82% 67% 64% 53% 46% 43% 45% 57%
Ad revenue growth
2-year stacked growth 59% 62% 64% 65% 65% 64% 55% 55% 55% accelerated to 66% ex FX
Q/Q % change 30% -3% 18% 11% 22% -8% 15% 12% 31% vs. 57% in 3Q... QoQ
growth of 31% exceeded
Mobile Ad Revenue $1,242 $1,336 $1,659 $1,952 $2,480 $2,421 $2,893 $3,353 $4,510
expectations
Y/Y % change 306% 258% 153% 122% 100% 81% 74% 72% 82%
Q/Q % change 41% 8% 24% 18% 27% -2% 19% 16% 34%
Mobile as % of Ad Revenues 53% 59% 62% 66% 69% 73% 76% 78% 80%
Price per ad growth slowed
Global Advertising ARPU $1.94 $1.81 $2.06 $2.22 $2.62 $2.34 $2.61 $2.97 $3.60 in 4Q as company laps
Y/Y % change 50% 57% 46% 45% 35% 29% 27% 34% 37% changes to right-hand-rail -
2-year stacked growth 31% 36% 39% 41% 43% 43% 36% 39% 36% nearly all the price increase
if from mobile mix-shift
Average price per ad -- % growth y/y 92% 118% 123% 274% 335% 285% 220% 61% 21%
Ad impressions -- % growth y/y -8% -17% -25% -56% -65% -62% -55% -10% 29%

Incremental operating
Operating Margin (non-GAAP) 57.9% 56.6% 60.2% 56.8% 57.6% 51.9% 55.1% 53.5% 60.3% margins jumped to 66%
Y/Y Change (bps) 1,151 1,568 1,446 603 -33 -462 -512 -328 269

Source: Company reports and STRH

Page 2 of 8
Facebook

STRH Portfolio Manager Synopsis - Non-GAAP Cost Trends

4Q'13 1Q'14 2Q'14 3Q'14 4Q'14 1Q'15 2Q'15 3Q'15 4Q'15
Cost of Revenues $ 473 $ 440 $ 448 $ 522 $ 593 $ 592 $ 601 $ 655 $ 747
% of revs 18.3% 17.6% 15.4% 16.3% 15.4% 16.7% 14.9% 14.6% 12.8%
R&D $ 224 $ 251 $ 259 $ 350 $ 410 $ 469 $ 550 $ 653 $ 700
% of revs 8.7% 10.0% 8.9% 10.9% 10.6% 13.2% 13.6% 14.5% 12.0%
S&M $ 248 $ 275 $ 305 $ 319 $ 417 $ 442 $ 440 $ 520 $ 583
% of revs 9.6% 11.0% 10.5% 10.0% 10.8% 12.5% 10.9% 11.6% 10.0%
G&A $ 142 $ 121 $ 145 $ 192 $ 212 $ 200 $ 223 $ 263 $ 288
% of revs 5.5% 4.8% 5.0% 6.0% 5.5% 5.6% 5.5% 5.8% 4.9% Expense growth of 42% in-
line with est... costs
Total Costs & Expenses $ 1,087 $ 1,087 $ 1,157 $ 1,383 $ 1,632 $ 1,703 $ 1,814 $ 2,091 $ 2,318
% of revs 42.1% 43.4% 39.8% 43.2% 42.4% 48.1% 44.9% 46.5% 39.7%
controls impressive in light
Y/Y % change 28.0% 26.1% 17.7% 39.4% 50.1% 56.7% 56.8% 51.2% 42.0%
of revenue upside...
Guidnace for 2016 is 45-
55%
STRH Portfolio Manager Synopsis - Ad ARPU
4Q'13 1Q'14 2Q'14 3Q'14 4Q'14 1Q'15 2Q'15 3Q'15 4Q'15
US & Canada Advertising ARPU $5.34 $5.16 $5.79 $6.64 $8.26 $7.62 $8.63 $9.86 $12.89
% growth y/y 61.8% 81.1% 57.8% 58.5% 54.7% 47.7% 49.1% 48.5% 56.1%
ARPU accelerated across all
Europe Advertising ARPU $2.36 $2.21 $2.61 $2.66 $3.22 $2.81 $3.19 $3.33 $4.36
regions
% growth y/y 61.6% 60.1% 56.3% 51.1% 36.4% 27.1% 22.2% 25.2% 35.4%
Asia Advertising ARPU $0.88 $0.88 $1.02 $1.12 $1.21 $1.14 $1.25 $1.36 $1.57
% growth y/y 51.7% 54.4% 50.0% 51.4% 37.5% 29.5% 22.5% 21.4% 29.8%
RoW Advertising ARPU $0.81 $0.68 $0.83 $0.82 $0.92 $0.78 $0.89 $0.92 $1.20
% growth y/y 52.8% 41.7% 38.3% 26.2% 13.6% 14.7% 7.2% 12.2% 30.4%

Source: Company reports and STRH

4Q vs. Expectations

FIGURE 2: FACEBOOK – STRH VERSUS STREET EXPECTATIONS

FB 4Q15 Results Vs. Expectations
Reported Consensus Beat/Miss
Revenue (M) $5,841 $5,370 9%
YoY % Growth 52% 39%
Advertising $5,637 $5,157 9% Strong quarter across
YoY % Growth 57% 43% the board. Revenue
Mobile $4,519 $4,091 10% accellerated and topped
YoY % Growth 82% 65% consensus by ~9% -
Desktop $1,118 $1,066 5% mobile >$4.5B.
YoY % Growth 0% -4%
Payments and other fees $204 $201 1%
YoY % Growth -21% -22% User growth continues
4Q'15

to be strong. FB added
DAUs (M) 1.04 1.04 0% >200M MAU and >140M
YoY % Growth 17% 16% DAU to the platform in
MAUs (M) 1.59 1.58 0% 20155
YoY % Growth 14% 14%
DAU as % of MAU 65.4% 65.4%
Mobile MAUs (M) 1.44 1.43 1%
YoY % Growth 21% 20%
Operating margins were
Operating Expense YoY % Growth 42.0% 42.2% - 330 bps better than
Operating Margin (non-GAAP) 60.0% 56.7% 30 bps consensus - revs 9%
EPS $0.79 $0.67 18% upside vs. expense
growth spot in-line
Full-year non-GAAP expense growth expected to be 45-55% vs. Street ~45%
Guidance

Full-year CapEx now expected to be $4.0-4.5B vs Street ~$3.5B Operating expense

Factors driving revenue in 2015 expected to be largely "intact" for 2016 guidance in-line with est.
Expect continued FX headwind, particularly in Europe and Latin America and better than feared
2016 tax rate should trends to the low 30s - and lower over time
Source: Company reports, FactSet and STRH

Page 3 of 8
Facebook

Valuation
We look at FB relative to our basket of Internet, Digital Media, and Technology comparable companies on EV/EBITDA, and to a
lesser extent EV/revenue multiples and perhaps more importantly on growth-adjusted EV/EBITDA basis. As illustrated in the
figure below, FB trades generally in-line with the peer group median on EV/EBITDA but higher than the group on EV/revenue
(which can be attributed to its better than average margin structure). On growth-adjusted EV/EBITDA multiples, FB trades at a
clear discount to the peer group median for both 2016 and 2017.

FIGURE 3: FACEBOOK – COMPARATIVE VALUATION

Facebook, Inc.

EV/Revenue EV/Revenue/ Growth EV/EBITDA EV/EBITDA/ Growth EV/EBITDA/Rev g P/E P/E/Growth P/FCF P/FCF/ Growth
Company 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017
Alphabet Inc. Class A 6.3x 5.4x 0.4x 0.3x 12.7x 10.8x 0.7x 0.6x 0.8x 0.7x 21.0x 18.0x 1.2x 1.1x 26.8x 20.3x 1.3x 0.6x
Apple Inc. 2.1x 2.0x (1.3)x 0.3x 6.4x 6.3x (0.8)x 3.1x (3.9)x 1.1x 10.1x 9.3x (186.8)x 1.0x 9.1x 9.2x
Walt Disney Company 2.8x 2.6x 0.4x 0.5x 8.9x 8.4x 1.2x 1.3x 1.3x 1.5x 16.7x 15.2x 1.7x 1.5x 21.1x 18.1x 3.8x 1.1x
TripAdvisor, Inc. 5.6x 4.8x 0.4x 0.3x 18.1x 14.5x 1.3x 0.6x 1.2x 0.8x 30.3x 24.2x 2.3x 1.0x 25.2x 19.9x 1.9x 0.8x
Oracle Corporation 3.7x 3.5x 1.3x 1.0x 8.1x 7.9x 1.9x 4.5x 2.9x 2.3x 12.3x 11.2x 1.4x 1.1x 11.5x 10.9x 1.5x
LinkedIn Corporation Class A 5.8x 4.6x 0.2x 0.2x 21.8x 15.9x 0.6x 0.4x 0.7x 0.6x 50.7x 35.5x 1.3x 0.8x 53.6x 32.2x 0.6x 0.5x
Priceline Group Inc 5.3x 4.6x 0.4x 0.3x 12.9x 11.0x 0.8x 0.6x 0.9x 0.8x 15.4x 13.3x 0.9x 0.9x 16.2x 14.0x 0.8x 0.9x
Netflix, Inc. 4.6x 3.6x 0.2x 0.1x 74.6x 30.5x 8.5x 0.2x 2.6x 1.2x 332.4x 78.2x (160.3)x 0.2x
Twitter, Inc. 3.0x 2.3x 0.1x 0.1x 11.3x 8.1x 0.2x 0.2x 0.3x 0.3x 30.2x 20.1x 0.5x 0.4x 97.0x 28.4x (0.5)x 0.1x
salesforce.com, inc. 5.6x 4.7x 0.3x 0.2x 25.5x 21.1x 0.8x 1.0x 1.2x 1.1x 68.4x 52.4x 2.2x 1.7x 30.7x 24.3x 1.2x 0.9x
Amazon.com, Inc. 2.2x 1.8x 0.1x 0.1x 20.0x 15.1x 0.6x 0.5x 1.0x 0.8x 105.8x 60.2x 0.5x 0.8x 32.2x 23.6x 0.7x 0.6x
eBay Inc. 3.8x 3.6x 0.8x 0.7x 9.3x 8.6x 1.8x 1.2x 2.0x 1.7x 13.3x 12.0x 1.6x 1.1x 12.4x 11.0x 0.7x 0.9x
Tencent Holdings Ltd. 8.2x 6.5x 0.3x 0.2x 18.9x 14.9x 0.7x 0.6x 0.7x 0.6x 28.6x 22.4x 1.0x 0.8x 23.9x 19.4x 0.6x 0.8x
Alibaba Group Holding Ltd. Sponsored
8.6x ADR 6.8x 0.3x 0.3x 17.2x 13.4x 0.6x 0.5x 0.6x 0.5x 20.9x 17.2x 0.8x 0.8x 21.3x 15.7x (1.5)x 0.4x
Baidu, Inc. Sponsored ADR Class A3.5x 2.8x 0.1x 0.1x 15.0x 11.4x 0.5x 0.4x 0.6x 0.5x 23.3x 17.0x 0.9x 0.5x 25.6x 16.4x 3.6x 0.3x

GROUP AVERAGE 4.7x 4.0x 0.3x 0.3x 18.7x 13.2x 1.3x 1.0x 1.0x 0.7x 52.0x 27.1x (22.1)x 0.9x 29.0x 18.8x 1.1x 0.7x
GROUP MEDIAN 4.6x 3.6x 0.3x 0.3x 15.0x 11.4x 0.7x 0.6x 0.7x 0.6x 23.3x 18.0x 1.0x 0.9x 24.6x 18.7x 0.8x 0.8x

Facebook, Inc. Class A 10.0x 7.3x 0.2x 0.2x 17.0x 12.4x 0.5x 0.3x 0.4x 0.3x 30.5x 22.0x 0.8x 0.6x 32.2x 22.7x 0.7x 0.5x

Source: Company filings and STRH

Source: FactSet; Company Reports; STRH

We increase our year-end 2016 price target to $125 from $120. Our target is based on the Central Tendency of Value
methodology anchored in 2017 estimates and target multiple of 17x EV/EBITDA and equating to 30x P/E and 10x EV/revenue
versus expected 3-year (’14-’17) revenue/EBITDA CAGRs of ~40% and a PEG <1x.

Page 4 of 8
Facebook

Model
FIGURE 4: FACEBOOK GROUP – FINANCIAL MODEL
Facebook - Income Statement
($USD in Millions, unless otherwise noted) 1Q14 2Q14 3Q14 4Q14 2014 1Q15 2Q15 3Q15 4Q14 2015 1Q16E 2Q16E 3Q16E 4Q16E 2016E
TOTAL COMPANY
MAUs (TOTAL) 1,276 1,317 1,350 1,393 1,393 1,441 1,490 1,545 1,591 1,591 1,634 1,682 1,737 1,780 1,780
seq gr 3.9% 3.2% 2.5% 3.2% 13.4% 3.4% 3.4% 3.7% 3.0% 14.2% 2.7% 2.9% 3.2% 2.5% 11.9%
yoy gr 15.0% 14.5% 13.5% 13.4% 13.4% 12.9% 13.1% 14.4% 14.2% 14.2% 13.4% 12.9% 12.4% 11.9% 11.9%
DAUs (TOTAL) 802 829 864 890 890 936 968 1,007 1,038 1,038 1,069 1,104 1,143 1,176 1,176
seq gr 5.9% 3.4% 4.2% 3.0% 17.6% 5.2% 3.4% 4.0% 3.1% 16.6% 3.0% 3.3% 3.5% 2.8% 13.3%
yoy gr 20.6% 18.6% 18.7% 17.6% 17.6% 16.7% 16.8% 16.6% 16.6% 16.6% 14.3% 14.1% 13.5% 13.3% 13.3%
% of Total MAUs 62.9% 62.9% 64.0% 63.9% 64.9% 65.0% 65.0% 65.2% 65.2% 65.2% 65.4% 65.6% 65.8% 66.0% 66.0%
Mobile MAUs (TOTAL) 1,008 1,070 1,124 1,189 1,189 1,248 1,314 1,385 1,442 1,442 1,489 1,541 1,600 1,649 1,649
seq gr 6.7% 6.2% 5.0% 5.8% 25.8% 5.0% 5.3% 5.4% 4.1% 21.3% 3.3% 3.5% 3.8% 3.1% 14.4%
yoy gr 34.2% 30.6% 28.6% 25.8% 25.8% 23.8% 22.8% 23.2% 21.3% 21.3% 19.3% 17.3% 15.5% 14.4% 14.4%
% Total MAUs 79.0% 81.2% 83.3% 85.4% 85.4% 86.6% 88.2% 89.6% 90.6% 90.6% 91.1% 91.6% 92.1% 92.6% 92.6%
Mobile DAUs (TOTAL) 609 654 703 745 745 798 844 894 934 934 969 1,008 1,051 1,088 1,088
seq gr 9.3% 7.4% 7.5% 6.0% 7.1% 5.8% 5.9% 4.5% 3.8% 4.0% 4.3% 3.5%
yoy gr 43.3% 39.4% 38.7% 33.8% 33.8% 31.0% 29.1% 27.2% 25.4% 25.4% 21.4% 19.4% 17.5% 16.5% 16.5%
% Mobile MAUs 60.4% 61.1% 62.5% 62.7% 62.7% 63.9% 64.2% 64.5% 64.8% 64.8% 65.1% 65.4% 65.7% 66.0% 66.0%
Gross Revenues:
Advertising Revenues 2,265 2,676 2,957 3,594 11,492 3,317 3,827 4,299 5,637 17,080 5,042 5,626 6,148 7,610 24,425
% growth y/y 82% 67% 64% 53% 65% 46% 43% 45% 57% 49% 52% 47% 43% 35% 43%
% growth q/q -3% 18% 11% 22% - -8% 15% 12% 31% - -11% 12% 9% 24%
% of Revenue 91% 92% 92% 93% 92% 94% 95% 96% 97% 95% 96% 97% 97% 97% 97%
Payments & Other Revenues 237 234 246 257 974 226 215 202 204 847 192 194 202 204 792
% growth y/y 11% 9% 13% 7% 10% -5% -8% -18% -21% -13% -15% -10% 0% 0% -7%
% growth q/q -2% -1% 5% 4% - -12% -5% -6% 1% - -6% 1% 4% 1% -
% of Revenue 9% 8% 8% 7% 8% 6% 5% 4% 3% 5% 4% 3% 3% 3% 3%
Total Revenues 2,502 2,910 3,203 3,851 12,466 3,543 4,042 4,501 5,841 17,927 5,234 5,819 6,350 7,814 25,217
% Growth (YoY) 72% 61% 59% 49% 58% 42% 39% 41% 52% 44% 48% 44% 41% 34% 41%
% Growth (Q/Q) -3% 16% 10% 20% 58% -8% 14% 11% 30% 44% -10% 11% 9% 23% 41%
EXPENSES
Total Cost of Revenues (ex-SBC) 440 448 522 593 2,003 592 601 655 747 2,595 875 865 924 999 3,663
% of Gross Revenues (ex-SBC) 17.6% 15.4% 16.3% 15.4% 16.1% 16.7% 14.9% 14.6% 12.8% 14.5% 16.7% 14.9% 14.6% 12.8% 14.5%
Gross Profit (ex-SBC) 2,062 2,462 2,681 3,258 10,463 2,951 3,441 3,846 5,094 15,332 4,359 4,954 5,426 6,815 21,554
Gross Profit Margin (ex- SBC) % 82.4% 84.6% 83.7% 84.6% 83.9% 83.3% 85.1% 85.4% 87.2% 85.5% 83.3% 85.1% 85.4% 87.2% 85.5%
Other Expenses 3.21% 4.71% 3.58% 1.34%
Research and Development (ex-SBC) 251 259 350 410 1,270 469 550 653 700 2,372 824 937 1,048 1,093 3,902
% Gross Revenues 10.0% 8.9% 10.9% 10.6% 10.2% 13.2% 13.6% 14.5% 12.0% 13.2% 15.7% 16.1% 16.5% 14.0% 15.5%
Sales and Marketing (ex-SBC) 275 305 319 417 1,316 442 440 520 583 1,985 659 704 730 860 2,953
% Gross Revenues 11.0% 10.5% 10.0% 10.8% 10.6% 12.5% 10.9% 11.6% 10.0% 11.1% 12.6% 12.1% 11.5% 11.0% 11.7%
General and Administrative (ex-SBC) 121 145 192 212 670 200 223 263 288 974 293 303 349 383 1,328
% Gross Revenues 4.8% 5.0% 6.0% 5.5% 5.4% 5.6% 5.5% 5.8% 4.9% 5.4% 5.6% 5.2% 5.5% 4.9% 5.3%
Total Costs and Expenses (ex SBC) 1,087 1,157 1,383 1,632 5,259 1,703 1,814 2,091 2,318 7,926 2,651 2,809 3,052 3,334 11,846
% of Revenues (ex SBC) 43.4% 39.8% 43.2% 42.4% 42.2% 48.1% 44.9% 46.5% 39.7% 44.2% 50.6% 48.3% 48.1% 42.7% 47.0%
% Growth Y/Y (ex SBC) 26.1% 17.7% 39.4% 50.1% 34.0% 56.7% 56.8% 51.2% 42.0% 50.7% 55.7% 54.9% 45.9% 43.9% 49.5%
Operating Income - GAAP 1,075 1,390 1,397 1,133 4,995 933 1,273 1,459 2,560 6,225 1,585 1,986 2,235 3,298 9,103
Margin 43.0% 47.8% 43.6% 29.4% 40.1% 26.3% 31.5% 32.4% 43.8% 34.7% 30.3% 34.1% 35.2% 42.2% 36.1%
Operating Income - Non-GAAP 1,415 1,753 1,820 2,219 7,207 1,840 2,228 2,410 3,523 10,001 2,583 3,010 3,298 4,479 13,371
Margin 56.6% 60.2% 56.8% 57.6% 57.8% 51.9% 55.1% 53.5% 60.3% 55.8% 49.4% 51.7% 51.9% 57.3% 53.0%
Incremental Margin 78.4% 84.1% 67.1% 57.0% 70.9% 40.8% 42.0% 45.5% 65.5% 51.2% 43.9% 44.0% 48.0% 48.5% 46.2%
+ Depreciation and Amortization 264 257 289 433 1,243 457 459 486 543 1,945 576 640 698 860 2,774
% Revenues 10.6% 8.8% 9.0% 11.2% 10.0% 12.9% 11.4% 10.8% 9.3% 10.8% 11.0% 11.0% 11.0% 11.0% 11.0%
EBITDA, ex-SBC 1,638 1,969 2,050 2,475 8,132 2,118 2,507 2,716 3,875 11,216 2,973 3,469 3,820 5,168 15,430
EBITDA Margin 65.5% 67.7% 64.0% 64.3% 65.2% 59.8% 62.0% 60.3% 66.3% 62.6% 56.8% 59.6% 60.2% 66.1% 61.2%
+ Interest income (expense) & other, net 0 (4) (61) (19) (84) (1) 0 (27) (3) (31) 0 0 0 0 0
PreTax Income 1,075 1,386 1,336 1,114 4,911 932 1,273 1,432 2,557 6,194 1,585 1,986 2,235 3,298 9,103
- Provision for income taxes 433 595 530 413 1,971 420 554 536 995 2,505 586 735 827 1,220 3,368
Effective tax rate 40% 43% 40% 37% 40% 45% 44% 37% 39% 40% 37% 37% 37% 37% 37%
Net Income (GAAP) 642 791 806 701 2,955 512 719 896 1,562 3,708 998 1,251 1,408 2,078 5,755
% Growth YoY 193% 138% 90% 34% 96% -20% -9% 11% 123% 25% 95% 74% 57% 33% 55%
Net Income Margin 26% 27% 25% 18% 24% 14% 18% 20% 27% 21% 19% 21% 22% 27% 23%
- Preferreds 3 3 4 5 15 3 4 5 7 19 5 5 5 5 20
Net income attributable to Class A and Class B common stockholders
639 788 802 696 2,925 509 715 891 1,555 3,670 993 1,246 1,403 2,073 5,715
GAAP EPS (Basic) $0.25 $0.31 $0.31 $0.25 $1.13 $0.18 $0.26 $0.32 $0.55 $1.31 $0.35 $0.44 $0.49 $0.72 $2.00
GAAP EPS (Fully Diluted) $0.25 $0.30 $0.30 $0.25 $1.10 $0.18 $0.25 $0.31 $0.54 $1.29 $0.35 $0.43 $0.48 $0.71 $1.97
YoY Growth 181% 127% 81% 22% 86% -27% -17% 3% 118% 17% 91% 71% 54% 30% 53%
Non-GAAP NET INCOME 926 1,121 1,149 1,518 4,714 1,189 1,437 1,628 2,265 6,519 1,757 2,040 2,237 3,011 9,045
Non-GAAP EPS (Fully Diluted) $0.35 $0.43 $0.43 $0.54 $1.76 $0.42 $0.50 $0.57 $0.79 $2.28 $0.61 $0.70 $0.77 $1.03 $3.10
YoY Growth 164.8% 104.1% 61.0% 68.5% 88.1% 18.1% 17.6% 30.9% 46.0% 29.7% 44.9% 39.2% 34.7% 30.3% 36.0%

Shares Outstanding (Basic) 2,545 2,560 2,587 2,761 2,613 2,784 2,796 2,808 2,825 2,803 2,839 2,853 2,868 2,882 2,860
Shares Outstanding (Fully Diluted) 2,609 2,615 2,644 2,816 2,671 2,836 2,850 2,863 2,878 2,857 2,892 2,907 2,921 2,936 2,914
Source: Company reports, FactSet and STRH

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Facebook

Company Description
Facebook, Inc. is a social networking service and website. It aims to make the world more open
and connected. People use Facebook to stay connected with their friends and family, to discover
what is going on in the world around them, and to share and express what matters to them to the
people they care about. Developers can use the Facebook Platform to build applications (apps) and
websites that integrate with Facebook to reach its global network of users and to build products that
are more personalized, social, and engaging. The company offers advertisers a unique combination
of reach, relevance, social context, and engagement to enhance the value of their ads. Its services
include timeline, news feed, messages, lists, ticker and mobile apps.

Investment Thesis
Facebook reaches over 1.5 billion unique visitors every month and over 880 million unique visitors
every day - a scale and reach that is unprecedented and provides unique optionality that few others
can match. We identify incremental revenue potential in areas like search, commerce and video as
well as on Messenger, WhatsApp and Oculus platforms. Further, its healthy balance sheet enables
the company to pursue long term growth opportunities to further augment growth. Monetization of
mobile users continues to improve at a rapid pace, and as total mobile users continue to expand we
see this as a key growth driver moving forward. We think there is an inordinate amount of optional
value for Facebook as it addresses these large target markets with its tremendous established user
base and hence our Buy rating.

Valuation and Risks

On 2017 ests., our $125 PT implies 17x EBITDA, 10x Revs., and 30x P/E and FCF vs. growth of
30%-35%.

Risks to Our Target and Rating

Facebook may be unable to monetize its large user base to its potential. Users may defect and
spend more time on other platforms like Google+, Twitter, Pinterest, Path, Snapchat or other
services. The company will need to spend more aggressively to retain users and buy disruptive
companies. Privacy concerns and government intervention may curtail Facebook’s growth
Companies Mentioned in This Note
Amazon.com, Inc. (AMZN, $583.35, Neutral)
Alibaba Group Holding Ltd. (BABA, $69.54, Buy)
salesforce.com Inc. (CRM, $67.43, Buy)
eBay Inc. (EBAY, $26.42, Neutral)
Alphabet Inc. (GOOGL, $717.58, Buy)
LinkedIn Corporation (LNKD, $188.03, Buy)
Netflix, Inc. (NFLX, $91.15, Neutral)
Oracle Corp. (ORCL, $34.91, Buy)
TripAdvisor, Inc. (TRIP, $67.54, Neutral)
Twitter, Inc. (TWTR, $16.78, Buy)
Apple Inc. (AAPL, $93.42, NR)
Walt Disney Company (DIS, $94.32, NR)
Priceline Group Inc (PCLN, $1043.7, NR)
Tencent Holdings Ltd. (700-HKG, $140.5, NR)
Baidu, Inc. Sponsored ADR Class A (BIDU, $158.27, NR)

Analyst Certification
I, Robert S. Peck , hereby certify that the views expressed in this research report accurately reflect my
personal views about the subject company(ies) and its (their) securities. I also certify that I have not been,
am not, and will not be receiving direct or indirect compensation in exchange for expressing the specific
recommendation(s) in this report.
I, Rodney A. Hull , hereby certify that the views expressed in this research report accurately reflect my
personal views about the subject company(ies) and its (their) securities. I also certify that I have not been,
am not, and will not be receiving direct or indirect compensation in exchange for expressing the specific
recommendation(s) in this report.

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Facebook

I, Matthew Thornton , hereby certify that the views expressed in this research report accurately reflect my
personal views about the subject company(ies) and its (their) securities. I also certify that I have not been,
am not, and will not be receiving direct or indirect compensation in exchange for expressing the specific
recommendation(s) in this report.

Required Disclosures
SunTrust Robinson Humphrey, Inc. makes a market in the following companies at the time of this report:
FB-US
Analyst compensation is based upon stock price performance, quality of analysis, communication skills,
and the overall revenue and profitability of the firm, including investment banking revenue.
As a matter of policy and practice, the firm prohibits the offering of favorable research, a specific
research rating or a specific target price as consideration or inducement for the receipt of business or
compensation. In addition, associated persons preparing research reports are prohibited from owning
securities in the subject companies.

STRH Ratings System for Equity Securities

3 designations based on total returns* within a 12-month period**
• Buy – total return ≥ 15% (10% for low-Beta securities)***
• Reduce – total return ≤ negative 10% (5% for low Beta securities)
• Neutral – total return is within the bounds above
• NR – NOT RATED, STRH does not provide equity research coverage
• CS – Coverage Suspended
*Total return (price appreciation + dividends)
**Price targets are within a 12-month period, unless otherwise noted
***Low Beta defined as securities with an average Beta of 0.8 or less, using Bloomberg’s 5-year average
Beta
Legend for Rating and Price Target History Charts:
D = drop coverage
I = initiate coverage
T = transfer coverage

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Facebook

SunTrust Robinson Humphrey ratings distribution (as of 01/28/2016):

Coverage Universe Investment Banking Clients Past 12 Months
Rating Count Percent Rating Count Percent
Buy 359 56.09% Buy 136 37.88%
Neutral 277 43.28% Neutral 61 22.02%
Sell/Reduce 4 0.62% Sell/Reduce 0 0.00%

Other Disclosures
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