September 21, 2016

Facebook, Inc. Class A

NASD: FB - Internet Software/Services

Grade Earnings Quick Facts

70.6 Last Earnings Release

Last Qtr. Actual vs. Est.

07/28/2016 Dividend Yield

$0.97 / $0.81 52 Wk High

N/A

$131.05

Next Release 10/25/2016 N/A 52 Wk Low $86.67

$128.6
09/19/2016
Year Ending 12/31/2016 $3.92 Short Interest 1% of float
Rated 'BUY' since Nov 17th, 2015, when it
Year Ending 12/31/2017 $5.04 Market Cap $369.3B
was upgraded from 'HOLD'

Overview
Company Scores Very Good Fundamental Grades
MarketGrader currently has a BUY rating on Facebook,
Inc. Class A (FB), based on a final overall grade of 70.6
scored by the company's fundamental analysis.
Facebook, Inc. Class A scores at the 96th percentile
among all 5365 North American equities currently
followed by MarketGrader. Our present rating dates to
November 17, 2015, when it was upgraded from a
HOLD. Relative to the Internet Software/Services sub-
industry, which is comprised of 124 companies,
Facebook, Inc. Class A's grade of 70.6 ranks 11th. The
industry grade leader is Autohome, Inc. Sponsored ADR
Class A (ATHM) with an overall grade of 85.0. The
stock, up 14.17% in the last six months, has
outperformed both the Internet Software/Services group,
up 13.42% and the S&P 500 Index, which has returned
5.07% in the same period. Please go to pages two and
three of this report for a complete breakdown of FB's
fundamental analysis.

Price, Rating and Sentiment History - 2 Years

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 September 21, 2016

Facebook, Inc. Class A

NASD: FB - Internet Software/Services 70.6
The Company's Growth Indicators are Very Strong Across the Board
Growth A Sugesting Market Share Gains
Facebook,Class A booked a total of $22.16 billion in revenue during the
Market Growth LT A+
12 months ended last quarter, which represents a remarkable 262.21%
increase from the equivalent period ended three years ago, in which total
Market Growth ST A+
revenue was $6.12 billion. Such strong sales growth momentum seems to
EPS Growth have carried into the company's latest quarterly report, in which total
A+
revenue of $6.44 billion represented a 59.23% increase from the year
Growth Potential A+
earlier period's $4.04 billion. This kind of top line growth is typical of
companies gaining market share and, if managed smartly, should Revenue Qtrly. 06/30/2016 $6.4B
Earnings Momentum B-
produce strong profits in the next few quarters. Also based on its latest Revenue Qtrly. Year Ago $4B
report, profits grew very strongly last quarter when compared to the year Revenue 1 Yr. Chg. 59.23%
Earnings Surprise B+
earlier period and when measuring full year results against those of three Revenue 12 Mo. Tr. Latest $22.2B
years ago. It posted a Second quarter profit increase of 186.43% to $2.05 billion from $715.00 million (excluding Revenue 12 Mo. Tr. 3Y Ago $6.1B
extraordinary items) a year earlier, compared to a 984.81% full year profit increase to $6.00 billion in the 12 Revenue 12 Mo. Tr. 3Y Chg. 262.21%
months ended last quarter from $553.00 million three years earlier. The company's margins have been expanding
consistently in the last three quarters, especially with an impressive 27.81% average increase in cash flow,
operating and net margins during the latest quarter compared to the year ago period.
Investors seemed unimpressed by the company's substantial earnings surprise on July 28, 2016, which exceeded
analysts' estimates by 19.75%, as the stock gained only 0.49% on the news. While this could be a sign the gains
were largely expected, it could also mean they are attributed to non-recurring income. This report continues a
remarkable trend of beating analysts' estimates consistently, having exceeded them by an average of 13.09% in
the last six reports.

Net Income Qtrly. 06/30/2016 $2B

Net Income Qtrly. Year Ago $715M
Net Income 1 Yr. Chg. 186.43%
Net Income 12 Mo. Tr. Latest $6B
Net Income 12 Mo. Tr. 3Y Ago $553M
Net Income 12 Mo. Tr. 3Y Chg. 984.81%

Current Valuation Suggests Investors Have High Expectations for

Value C Future Company Reports Making Stock Speculative
Trading at 28.76 times 12-month' earnings per share, Facebook,Class A's
Capital Structure A+
stock is inexpensive relative to our "optimum" P/E ratio of 34.89, the level
that could be justified by the company's EPS growth rate. This
P/E Analysis B
MarketGrader-calculated ratio uses the company's quarterly earnings
Price/Book Ratio over the last five years, in 12-month rolling periods, to determine the rate
F
of growth. By its measure, Facebook,Class A has grown its earnings per
Price/Cash Flow Ratio C
share at an annualized rate of 31.82% during that time. The combination
of such a high growth rate with an apparent margin expansion probably P/E Ratio 12 Mo. Tr. 06/30/2016 61.85
Price/Sales Ratio F
means the company has been gaining market share in recent quarters
Optimum P/E Ratio 34.89
without sacrificing financial performance, evidenced by its superior overall
Market Value F
Profitability grade. This combination offers a strong case for future gains Forward P/E Ratio 28.76
S&P 500 Forward P/E Ratio 15.20
in the stock price. The stock's forward P/E of 28.76, based on its earnings estimate for the next four quarters,
represents a premium to the S&P 500 index's forward P/E of 15.20 but is lower than its trailing P/E of 61.85. Price to (Tangible) Book Ratio 34.87
Therefore value could apparently be found in the company's future earnings growth even though relative to the Price-to-Cash Flow Ratio 33.36
market the stock might not seem cheap (the fundamentals may already be factored into the price). But assuming Price/Sales Ratio 16.66
the company remains fundamentally strong, the stock might have further room to run, or at least be a relatively
safe place to be if earnings estimates materialize into actual reported results.
Facebook,Class A's price to book ratio varies significantly depending whether intangible assets (which make up
an astounding 78.73% of total stockholders' equity) are included into total assets. If they are, the stock's price to
book ratio is a moderate 7.42, while removing intangible assets such as goodwill results in a much richer price to
book ratio of 34.87, attaching very high expectations to the company's future earnings power. From a cash flow
perspective the shares look pricey considering investors are paying 33.36 times the $3.86 in cash flow per share
generated by the company in the last twelve months. This is a significant premium even if the company's
fundamentals look generally strong. Based on its price to sales ratio of 16.66, its shares trade at a sizable
392.40% premium to the Internet Software/Services average of 3.38 times trailing 12-month sales. Our final value
indicator looks at the relationship between the company's current market capitalization and its operating profits
after deducting taxes. By this measure Facebook,Class A's $369.35 billion market cap is excessively high
considering it is 45.24 times its most recently reported net income plus depreciation (added back since it's a non-
cash charge).

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 September 21, 2016

Facebook, Inc. Class A

NASD: FB - Internet Software/Services 70.6
While Company's Profitability Grades Are Pretty Solid, They Offer
Profitability B Plenty of Room for Improvement
Facebook,Class A's profitability grades are mixed, with a combination of
Asset Utilization A
very strong margins and a very poor return on equity, all based on 12-
month trailing results. During this period not only did the company's
Capital Utilization D
operating margins surpass the industry average but the $6.00 billion it
Operating Margins earned in profits represent 27.07% of all revenue booked in the period, an
A
excellent net profit margin. Operating income during that same period
Relative Margins A+
accounted for 39.95% of sales, 161.18% higher than the average
operating margin for the Internet Software/Services industry, which was
Return on Equity D
14.49%. Facebook,Class A's poor return on equity of 11.91% based on
what the company earned over the last four quarters actually represents
Quality of Revenues D
an improvement from the return on equity of 6.90% achieved in the 12
months ended a year earlier. This measure is important to MarketGrader in measuring profitability trends over
time and the efficiency of company's management.
Despite this improvement in the company's operating results, management continues to be very conservative
with the balance sheet as the company currently has no debt at all. Facebook,Class A's $11.06 billion in twelve
month trailing core earnings, or EBITDA, shows a remarkable increase of 74.69% from the twelve months ended
a year earlier, in which its core operations generated $6.33 billion. EBITDA is used to measure the company's
true earnings power by including interest costs, income taxes, depreciation and amortization, all non-operating
charges, which are nevertheless accounted for in several EPS and net income measures of our fundamental
analysis.

Company's Cash Flow Is Very Well Managed as Our Analysis Reflects

Cash Flow A a Very Healthy Operation
Facebook,Class A's cash flow grew considerably in its latest quarter to
Cash Flow Growth A+
$3.20 billion, a 70.11% increase from $1.88 billion reported in the year
earlier period. This marks a slowdown in the company's operating income
EBIDTA Margin A
when compared to the higher cash flow growth of 74.70% achieved
Debt/Cash Flow Ratio during the last twelve months relative to the twelve months ended a year
A+
ago. Should this trend continue, the company's margins will erode and
Interest Cov. Capacity A+
future earnings growth will slow down. The company clearly has very
strong liquidity having no debt to finance, $23.29 billion in cash on hand Cash Flow Qtrly. 06/30/2016 $3.2B
Economic Value B+
as of last quarter and a business that generated $14.12 billion in earnings
Cash Flow Qtrly Year Ago $1.9B
before interest, taxes, depreciation and amortization in the same period.
Retention Rate A+
This affords it significant flexibility to take on debt if it wanted to pursue Cash Flow 1 Yr. Chg. 70.11%
Cash Flow 12 Mo. Tr. Latest $11.2B
new growth opportunities such as an acquisition. The company had $23.29 billion in cash on hand last quarter
compared to $14.12 billion a year earlier, a 64.91% increase. It continues to have no debt. Cash Flow 12 Mo. Tr. 3Y Ago $3B
Cash Flow 12 Mo. Tr. 3Y Chg. 277.1%
According to our Economic Value indicator, which measures the company's return to shareholders after
Free Cash Flow Last Qtr. $2.2B
accounting for its costs of capital as well as its operating costs, Facebook,Class A's results were very solid last
year. The company had $50.38 billion in total invested capital as of its most recently reported quarter; this
includes only all forms of equity since it carries no debt. And based on its 12-month trailing operating income the
company generated a 17.57% return on that capital over the same period. Its after tax cost of equity in the last Economic Value
year was 7.51%, which should be seen as the opportunity cost of investing in Facebook,Class A's shares. After Total Invested Capital $50.4B
deducting this cost from its return on investment the result is 10.06% in economic value added, or EVA, the true Return on Inv. Capital 17.57%
economic profit generated by the company last year for its shareholders. Facebook,Class A does not pay a Weighted Cost of Equity 7.51%
dividend and hasn't done so within at least the last five years. Weighted Cost of Debt 0.00%
Total Cost of Capital 7.51%
Economic Value Added 10.06%

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 September 21, 2016

Facebook, Inc. Class A

NASD: FB - Internet Software/Services 70.6
Profile
Facebook, Inc. is a social networking service and website. It aims to make the world more open and Key Facts:
connected. People use Facebook to stay connected with their friends and family, to discover what is 1601 Willow Road
going on in the world around them, and to share and express what matters to them to the people Menlo Park ,CA 94025
they care about. Developers can use the Facebook Platform to build applications (apps) and Phone:
www.facebook.com
websites that integrate with Facebook to reach its global network of users and to build products that
are more personalized, social, and engaging. Advertisers can engage with more than 800 million
monthly active users on Facebook or subsets of its users based on information they have chosen to Biggest Company in Sub-Industry
share such as their age, location, gender, or interests. The company offers advertisers a unique Alphabet Inc. Class A
combination of reach, relevance, social context, and engagement to enhance the value of their ads. Grade 81.6
Facebook was founded by Mark Elliot Zuckerberg, Dustin Moskovitz, Chris R. Hughes and Eduardo Market Cap:$546.73 billion
Saverin on February 4, 2004 and is headquartered in Menlo Park, CA.

Smallest Company in Sub-Industry

Visionstate Corp. (VIS.CA)
Grade 17.1
Market Cap:$0.77 million

MarketGrader Dilution Analysis Income Last Qtr 12 Mo.

Statement (06/2016) Trailing
Impact of Change in Shares on EPS - Q3 2016
Dilution Summary Revenue $6.4B $22.2B
*EPS Latest $0.71 Op. Income $2.8B $8.9B
*EPS Year Ago $0.25
Net Income $2.0B $6.0B
EPS Change 1 Yr. 181%
*EPS $0.71 0
C. Shares - Latest(M) 2,904
C. Shares - Yr Ago(M) 2,850 *Earnings per share are based on fully diluted net income per share
excluding extrodinary items. This number may not match the
C. Shares - 1Yr Chg. 2% headline number reported by the company.

EPS if Yr. Ago Shares $0.72

EPS Chg. if Yr. Ago 186%
EPS Loss from Dilution ($0.01)
Balance Sheet Latest

Total Assets $55.7B

*Earnings per share are based on fully diluted net income per share excluding extrodinary items. This number may not match the headline number reported by the company.

Total Debt 0

Stockholders Eq. $50.4B

All numbers in millions except EPS

Ratios
Price/Earnings (12 mo. trailing) 61.85

Price/Tangible Book 34.87

Price/Cash Flow 33.36

Price/Sales 16.66

Debt/Cash Flow 0.00

Return on Equity 11.91%

Gross Margin (12 mo. trailing) 85.77%

Operating Margin (12 mo. trailing) 39.95%

Total Assets $55.7B Gross Margin last Qtr. 85.77%
Net Profit Margin (12 mo. trailing) 27.07%
Intangible Assets $39.7B EBITDA Margin last Qtr. 52.72%
Long Term Debt 0 Operating Margin last Qtr. 43.32%
Total Debt 0 Operating Margin Sub-Industry Avg. 14.49%
Book Value $50.4B Operating Margin 12 mo. trailing 39.95%
Enterprise Value ($23.3B) Net Profit Margin Last Qtr. 31.82%

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 September 21, 2016

Facebook, Inc. Class A

NASD: FB - Internet Software/Services 70.6
Top Down Analysis
# Ticker Grade Sentiment Name Price Next EPS
1 NTIP 88.13 N Network-1 Technologies, Inc. $2.73 11/14/2016
Technology 2 SVC.CA 87.98 Sandvine Corporation $2.92 10/06/2016
N

Stocks in Sector: 807 3 UBNT 87.65 P Ubiquiti Networks, Inc. $52.83 11/03/2016
Buys: 120 (14.87%) 4 TSEM 85.05 P Tower Semiconductor Ltd $15.02 11/10/2016
Holds: 110 (13.63%)
Sells: 577 (71.50%) 5 ATHM 85.03 N Autohome, Inc. Sponsored ADR Class A $23.68 11/03/2016
6 SILC 82.14 P Silicom Ltd. $40.63 10/24/2016
No. of stocks at:
7 GOOGL 81.59 P Alphabet Inc. Class A $795.39 10/20/2016
52-Wk. High: 49
52-Wk. Low: 25 8 NTES 81.25 P NetEase, Inc. Sponsored ADR $248.99 11/09/2016
Above 50 & 200-day MA: 406 9 NII.CA 79.79 P Norsat International Inc. $10.20 11/02/2016
Below 50 & 200-day MA: 211
10 VCM.CA 79.58 N Vecima Networks Inc. $9.78 09/22/2016
30 FB 70.62 P Facebook, Inc. Class A $128.65 10/25/2016

# Ticker Grade Sentiment Name Price Next EPS

1 ATHM 85.03 N Autohome, Inc. Sponsored ADR Class A $23.68 11/03/2016
Internet
Software/Services 2 GOOGL 81.59 P Alphabet Inc. Class A $795.39 10/20/2016
Stocks in Sub-Industry: 124 3 NTES 81.25 P NetEase, Inc. Sponsored ADR $248.99 11/09/2016
Buys: 26 (20.97%)
4 YRD 78.40 P Yirendai Ltd. Sponsored ADR $21.17 08/31/2016
Holds: 12 (9.68%)
Sells: 86 (69.35%) 5 MEET 77.34 P MeetMe, Inc. $5.69 08/03/2016
6 YY 75.09 N YY, Inc. Sponsored ADR Class A $53.86 11/08/2016
No. of stocks at:
52-Wk. High: 6 7 GOOG 72.42 P Alphabet Inc. Class C $765.70 10/20/2016
52-Wk. Low: 4 8 ZPIN 71.82 P Zhaopin Ltd. Sponsored ADR Class A $15.40 11/09/2016
Above 50 & 200-day MA: 50
9 BIDU 71.67 N Baidu, Inc. Sponsored ADR Class A $184.74 10/27/2016
Below 50 & 200-day MA: 41
10 EGOV 71.53 P NIC Inc. $22.72 11/03/2016

1. Price Trend. A+ 2. Price Momentum. B

9.5
3. Earnings Guidance. A 4. Short Interest. A+

Copyright 2010 MarketGrader.com Corp. All rights reserved. Any unauthorized use or disclosure is prohibited. Neither the information nor any opinion expressed constitutes an offer to buy or sell any securities or any options, futures or other derivatives related to
such securities ("related investments"). The information herein was obtained from various sources; we do not guarantee its accuracy or completeness. This research report is prepared for general circulation and is circulated for general information only. It does not
have regards to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. Investors should seek financial advice regarding the appropriateness of investing in any securities or investment
strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. Investors should note that income from such securities, if any, may fluctuate and that each security's price or value may
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