A Critical Intrinsic Valuation of Facebook and Google

This study is a faculty-student research collaboration that formed part of the formal assessment of the Financial Statement Analysis MBA Accounting Program course taught at a United States university. This study is particularly important because company valuation is an inherently complex and challenging topic for instructors to teach and students to learn. To address these shortcomings, the students using a team-based learning approach and working under the guidance and direction of the instructor, performed a critical comparative valuation analysis of Google and Facebook to determine intrinsic value. The students implemented a blended approach comprising discounted cash flow, residual operating income, and market-based multiples valuation models as well as ratio analysis and user engagement metrics. One finding is that the students, via the team-based learning approach, achieved the learning outcomes in a unique and interesting way using real companies. Second, in contrast to certain professional equity analysts influenced by agency costs, Facebook and Google appear overvalued overall. Third, to better understand company valuation, the analysis needs to extend beyond financial statements, ratio analysis, and valuation models. This is because current events and key metric fluctuations can materially impact firm valuations. This study which has strong pedagogical impact evidenced by the overall student feedback, contributes by helping educators to be facilitators in supporting and enabling students to effectively use the novel team-based learning approach to independently learn and to master in a bite-sized way, cumbersome key technical valuation concepts; and to hone their employable skills that are becoming increasingly valued by employers today.