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May 23, 2012 Laura Martin, CFA [email protected] 917-373-3066Kerry Rice [email protected] 415-262-4890

Dan Medina [email protected]

Internet, Entertainment & Consumer

Fac ebo ok Inc . (FB) BuyFB: Initiating Coverage with a Buy and $40 TP

We initiate coverage of Facebook (FB) with a BUY rating and $40 target price.With over 900mm monthly unique users, we believe FB is an option on the World.The best question for FB is how to value it. Our point of view is that FB should bevalued based on revenue potential from total minutes spent on FB times itspowerful margin expansion engine.

1. Consumer adoption. We believe that the potential to generate revenue islimited by consumer demand for your product online. Monthly users are thebest proxy for consumer acceptance, since consumer substitution is easyonline. FB has about 900mm monthly users after 8 years in existence, about90% of Googles 1 billion monthly users after 14 years.

2. Time Spent. We believe that money follows time. FB representsapproximately 14% of time spent online globally (comScore), suggesting thatits revenue potential is $14B globally and $6B from the US alone, calculatedas 14% of Zeniths global internet revenue estimate of $98B and eMarketersUS internet estimate of $46B in 2013.

3. Margin Expansion. The operating margins at FB are enormous andexpanding, at 33.7% in 2009, 52.3% in 2010, and 47.3% in 2011. Thispowerful economic engine suggests profit growth will be faster than revenuegrowth.

4. Execution. FB has already solved the two hardest execution risks online-discovery and relevance. The biggest execution risk that remains ismonetization. Advertising, payments, social graph services since webelieve that money follows time, we also believe the FB platform offersseveral ways to solve the monetization puzzle. We completed a proprietarysurvey of FB users that highlighted several monetization opportunities.

5. Global Scale: FBs global platform with long engagement times gives it a

unique strategic position to generate revenue from global advertisers,payments, services, etc. It also represents a meaningful barrier to entry.

Coverage In i t ia t ion

Price (05/22/12) $31.00

12-Month Price Target $40.00

52-Week range $38.23-31.00

Shares Out. (MM) 2,750.0

Market cap (MM) $85,250.0

Avg. daily volume (000) 283,650.4Financial Data

Total Debt/Cap. 0.0%

Price/LTM Rev.

Tangible BVPS $3.55

Net Ca sh Per S hare $2. 57

Market Data

Facebook Inc. Price 05/22/12

31

32

33

34

35

36

37

38

39

May

Volume (000)

100,000150,000200,000250,000300,000350,000400,000450,000500,000550,000600,000

May

FY FY FY

12/31/11 A 12/31/12 E 12/31/13 E

Old New Old New

Rev. (MM) $3,711.0 $5,041.1 $6,525.6

Growth 88.0% 0.0% 35.8% 0.0% 29.4%

Op. Mar. 47.3% 39.0% 40.0%

EPS: 1Q 0.09A 0.13

EPS: 2Q 0.11 0.14

EPS: 3Q 0.12 0.15

EPS: 4Q 0.15 0.17

EPS: Year 0.43 0.48 0.60

Growth 53.6% 0.0% 12.1% 0.0% 23.4%

P/E Ratio 0.0x nm 64.3x nm 52.1x

Source: Company data, Needham and Company estimates. Note: Pro forma earningsestimates displayed above do not include one-time items or any stock compensationexpenses.

Disclosures applicable to this security: B, G.

Disclosure explanation on the inside back cover of this report.

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2 An Investment Analysis by Needham & Company, LLC

MORE THOUGHTS ON VALUATION

We think of FB as a global consumer-facing ad-driven platform and that therefore themost comparable predecessors to FB were Google and Yahoo! Since the Internetenvironment has changed rapidly, we think Google is a more relevant predecessor inmany respects. Our comparative valuation thoughts include:

1. Relative Risk. At its IPO date, GOOG was valued at about 17x revenue and FB isvalued at about 19x revenue. We believe that this premium is deserved becausethe risk an investor takes in buying FB is lower than Googles at its IPO date.Purchasers of the Google IPO took both consumer-adoption risk and dollars peruser risk. Google reported $1.5B of revenue in 2003, the year before it camepublic, and it only had 60mm users at its IPO date. By contrast, FB reported $3.7Bof 2011 revenue (before it came public) and it has virtually NO consumer-adoptionrisk as it is in 90% of the households that Google is today. An investor buying FBhas the narrower risk of dollars per user.

2. Money Follows Time. How big could FBs revenue be? We believe that FBshould have higher revenue than Google over time because the number of users

are about the same but the average time spent on the Facebook site is 14 minsper day, which is nearly 3x Google.coms 5 minutes spent per person per day. Interms of value, investors are buying FB at half the valuation of Google, but getting3x the minutes spent. In fact, the single Facebook.com site accounted for 14.6%of all time spent online, while all Google Sites (including YouTube) were second at10.8%, and all Yahoo! Sites were third at 8.6%. (Source: comScore, December2011)

3. Monetization Upside. We believe Google search does an excellent job at thebottom of the purchase funnel for advertisers. We think GOOG has broughtgenius to the equation of linking consumer purchase intent to advertising andcommerce. We do not believe this is an area that will be unseated by FB. We aremore optimistic about FB payments and revenue-sharing from access to its

platform over time and from services that use the social graph that only Facebookhas. In answer to questions we posed in a proprietary survey of Facebook users,respondents mentioned that they valued recommendations by their friends morethan strangers. Only FB knows who their friends are, which suggests revenueupside over time (for details of our FB survey, please see Appendix A).

4. Platform Optionality. We would underscore the huge consumer value beingcreated each day by the FB platform on a global basis, as evidenced by 900mmpeople using FB an average of 14 minutes per day, accounting for 14% of all timespent on-line and 16% of all page views (comScore), The FB platform hasestablished its value to consumers. The primary remaining execution risk is howto best monetize that value without negatively impacting consumer usage.

5. Margin Engine. FB is a fixed-cost business with low marginal costs for each new

revenue dollar. By implication, FBs earnings growth should be faster than itsrevenue growth. FBs margins are significantly higher than Googles in its first fiveyears of existence (the same phase of growth), as illustrated by Figure 1 below.

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An Investment Analysis by Needham & Company, LLC 3

Figure 1*

Margin Expansion Track Record-20%

13%

42%

-81%

52% 47%

34%

-77%

23%20%

-85%

60%

Year 1 Year 2 Year 3 Year 4 Year 5

OpInc/Revenue

FB

GOOG

*Year 1 for GOOG is 2000. Year 1 for FB is 2007.Sources: Google and Facebook filed documents.

6. Management Track Record. Employees in the Silicon Valley are mobile andmove to the company that has the smartest people, the best culture, and a stronglikelihood of an IPO in the near future. FB has had its pick of the litter for the pastseveral years. FBs 3,539 employees are among the best at each job they do. Webelieve this collection of the best and brightest will figure out how to createrevenue from 900mm people spending 14 mins/day on the FB platform.

7. Large Cap Growth Stocks Are Rare. With US GDP growing 2% and Europelower, growth is difficult to find, and large cap growth stocks are even more rare.We estimate that FB will grow revenue by 36% in 2012, by 29% in 2013. FB hasgrown subs by 50-60mm per quarter like clockwork for the past 12 quarters.

8. Alpha. FB will not be in any index in the near term, which creates opportunity foralpha. For example, between Googles IPO date on 8/19/2004 and the dateGOOG entered the S&P index on 3/31/2006, Google rose 359% compared withthe S&P500 increase of 19%, representing significant alpha created by GOOG,and suggesting potential alpha upside for FB.

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INTRODUCTION

This report is laid out in the following order: 1) Investment Positives; 2) Risks to ourTarget Price, 3) Earnings Estimates; 4) Detailed Valuation Discussion; and 5)Company Description. Appendix A includes a summary of the results of ourproprietary survey. Since everyone knows what Facebook does, we have moved the

company description to the back of this report, so as not to bury the lead.

INVESTMENT POSITIVES

1. Global Scale creates a virtuous cycle and competitive advantage for FB.Facebook is the largest social network, with 901 million users, representing about40% of global Internet users and 90% of Googles 1B monthly users. Additionally,FB reported 526 million daily active users in March 2012, an increase of 41% y/y.The large and rapidly growing user base attracts advertisers and retailers andcreates meaningful upside revenue optionality for the FB platform.

2. Platform Value. FBs platform provides connective tissue to expand socialexperience, unlocking innovation, and maximize pricing power. FB has created a

walled-garden platform (similar to Apple APPL, Buy). FB controls access to itsusers and all data posted on the site. It also requires apps to be developed solelyfor Facebook. This allows FB to control, standardize and maximize the userexperience. FB provides a consistent suite of APIs that enables any softwaredeveloper to interact with Facebook, which we believe unlocks innovation. Thecompanys walled garden approach also prevents the site from being indexed byGoogle (GOOG, Buy) or any other third party. This means that FB has advertisinginventory that is differentiated from the rest of the Internet, maximizing its pricingpower.

3. Engagement Is Valuable. We believe two groups within Facebook, fans andfriends of fans, are critical drivers of value for FB. A member becomes a fan, whenthey like content and friends of fans are a members social graph. Facebook

revealed that members generated an average of 3.2 billion Likes and Commentsper day during 1Q12. Additionally, members generate 100 million Likes for brandsevery day. A Webtrends study revealed that the average click through on ads tofans and friends of fans were 7x and 4x the click through for non-fans,respectively. Armed with this insight, Facebook launched its Expanded PremiumAd, which highlights a friends Like with an accompanied picture of the friend.Using this strategy, users were twice as likely to remember this ad and were morelikely to share the ad compared to typical display ads. Additionally, the intent topurchase increased 4x. Implications? Sellers and advertisers can engage withconsumers worldwide at scale. Friending establishes an authentic and ongoingconnection between consumers and brands. These interactions build socialcapital for brands because consumers trust recommendations from friends and

their social graph. Additionally, our research shows that engagement is a betterpredictor of monetary upside than unique visitors.

4. Personalization enhances relevance which increases engagement and drivesrevenue growth. Beyond liking or following a brand, we believe personalization isa key driver of value. We believe a key competitive advantage of Facebook ispersonalization owing to the vast amount of personal data revealed byconsumers, social context, and relevance. We believe personalization createsvalue in two ways for consumers:

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First, the organization and prioritization of content serves as a tool forconsumers to discover and consume content specific to their interests.

Second, personalization enables Facebook to provide a platform for thecreation of new products that enable customized users experiences, suchas Pandora (P, BUY), which enables customized radio stations.

Over time, we believe FB has the potential to anticipate consumers intent.

Understanding intent would enable advertisers and online retailers to personalizeofferings, which would improve return on investment.

5. FB as Power Seller. We believe that FBs power to sell products is more powerfulthan the visible revenue streams it is generating today. In an April 2, 2012 studypublished by Sociablelabs, 62% of the 1088 consumers it studied had checkedout a product posted by one of their friends on FB. Of those, 75% of the shopperswho read about the product clicked on the link that took them to an external point-of-purchase or brands website and 53% of those consumers PURCHASEDsomething. This suggests that about 20% of consumers that saw an ad onFacebook posted by a brand ambassador actually bought something. This studyalso calculated peoples trust in advertising on social media. 48% of consumersstudied found Facebook very helpful in searching for products to buy.

Figure 2*Fan Non-Fan

Conversion ConversionConversion Type Rate Rate

Appl Install 38% 12%Contest Submission 6% 1%Contest Voting 31% 5%Fan Acquis ition 29% 19%Program Sign-up 2% 1%Purchase 7% 2%Sweepstakes Entry 39% 17%

Total 19% 7% *This study included 5 million Facebook ads placed by 50 clients.Source: SocialCode study, Needham & Company, LLC.

6. ARPU Momentum. ARPU increased 32% from $3.08 in 2009 to $4.08 in 2010and 25% to $5.11 in 2011, with ARPU growth across all regions of FBs footprint.

7. International Growth. Despite Facebooks enormous global scale, penetration inlarge geographies such as Russia, South Korea, and Japan is still below 20%,which suggests user and revenue growth opportunities for many years to come.

8. Mobile adoption should be an engine for Facebook user growth and engagementfor many years to come. We believe the billions of mobile devices enableconsumers to remain connected regardless of location or time. More than 50% of

FBs monthly active users (representing 488 mm users) accessed Facebook withmobile devices in March of 2012. In the US alone, comScore reported that usersspent 391 minutes accessing FB on the PC plus 441 minutes accessing FB onsmartphones in March of 2012. Rapidly growing mobile usage has been a keydriver of Facebooks daily active user growth. Over the past 6 months alone, FBsmobile users have grown 39% (350mm in September 2011 to 488mm in March2012). We believe mobile access is largely additive rather than cannibalisticbecause FBs mobile usage has not slowed its strong growth in unique visitors to

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its PC-based website, which increased 33% y/y in March 2012. Notably, theFacebook app is the most downloaded app across all mobile platforms.

9. Advertiser Adoption. Speaking with many ad agency executives during thedigital NewFronts and the Broadcast TV upfronts, most suggested that they willspend more money on FB in 2012 than they did in 2011, and that they expect tospend even more in 2013 vs 2012.

10. Barriers to Entry. FB benefits from network effects, which implies a virtuouscycle. The more people that are on FB, the more valuable it becomes. We believethe scale of FBs network represents a significant competitive advantage and asignificant barrier to entry. Consumers find it difficult to maintain multiple profileson other platforms.

11. Potential Revenue Upside. We believe that the right way to think about FB is asa platform with revenue upside over a global footprint. In our proprietary survey,we asked FB users about what they liked and didnt want in terms of monetizingthe FB platform. Those ideas are included in the section below.

Payments. We are optimistic about the payments business for FB. Webelieve that developers will innovate to create value from FBs enormousglobal reach (just as Zynga has) and that FB will share in these revenue

streams through Facebook credits. We envision a world where PayPalloses a portion of its revenue and credit card companies lose a portion oftheir fees to Facebook credits over time.

Advertising. Advertisers can have home pages, apps and/or buyadvertising on FB to try to engage with all of FBs 900 million monthlyactive users or just subsets based on information users have chosen toshare about their age, location, gender, or interests. FB delivers toadvertisers reach, relevance, social context, and engagement. Together,this combination holds out the promise of higher effectiveness thantraditional choices. Branded Advertisers. 35% of total direct responseadvertising has moved online, compared with only 6% of brandedadvertising. One of the key gating factors for brands is that they must have

a safe environment. That is, they dont want their ad to show up next toinappropriate content. FB is a closed platform, so it has control over whattype of content a branded advertisers ad shows up next to. We note that100% of the top 100 brands have FB relationships in some form and thatbranded advertising dollars approach $90 billion annually. We believe thatFBs global platform will successfully move these reluctant brand dollarsonline.

E-commerce. Certain online retailers allow consumers to identify theproducts or services that interest them by tagging them. According to anATG survey, in the online world, women most often care aboutrecommendations and 78% of women in the U.S. use the Internet forproduct information before making a purchase. Twice as many women as

men said they frequentlyshare purchasing activities on Facebook andTwitter. This bodes well for FBs unique strategic position betweenpurchase intent and actual purchase.

Video Upside. The TV ecosystem reports approximately $150B ofrevenue annually. We attended the Digital NewFronts in NYC in April andwere struck by the enormous growth of original scripted premium videothat is being produced in Hollywood, directly for the Internet. AOL (AOL,Buy) announced 14 new premium content channels and YHOOannounced 3 new premium content slates (women, men and comedy).

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RISKS TO OUR TARGET PRICE

1. Fatigue Factor. About 30% of the respondents in our proprietary survey saidthey were using FB less than one year ago. Is there a FB lifecycle?

2. Privacy Issues. How FB uses its users data has come under close scrutiny. Therising sensitivity around privacy could threaten FBs revenue upside. 57% of FB

users are women and women are far more private than men. An OxygenMedia/Lightspeed survey from July 2010 highlighted several FB privacy issueswith women users including the statistic that 54% of 18-24 year old women saidthat they did not trust Facebook with their private information, and 89% agreedthat you should never put anything on Facebook that you dont want your parentsto see.

3. Advertising Seasonality. We note the seasonal slowdown of Facebooks 1Q12revenue. For 1Q12, revenue was $1.06 billion, down slightly from $1.13 billion in4Q11. Typically, advertising spending is strongest in Q4 and weakest in Q1 but itsurprises us that FB would be subject to typical seasonality of the advertisingmarket given its early stage of growth. Similarly, average revenue per user growth(ARPU) declined to $1.21 in 1Q12 from $1.38 4Q11. We believe the decline in

ARPU was related to faster monthly active user growth in geographies with lowerARPUs, such as Asia and Rest of the World geographies, as well as rapid growthin mobile adoption (which monetizes at a lower rate).

4. Mobile. There has been a rapid shift from Facebooks website to mobile.Historically, Facebook has not shown ads to users accessing FB through mobileapps or its mobile website. Not only is Facebooks ability to deliver ads to itsmobile users a risk, in our view, there is uncertainty as to whether Facebook canmonetize these ads at the same level as on the desktop over time. We note thatmanagement has stated that improving Facebooks mobile experience is a toppriority. To that end, FB redesigned its mobile app, which expands the size of thephotos and integrated its like and comment buttons into a like bar to ease usewith a single click. Additionally, FB acquired top photo share app, Instagram, for

$1B as well as Lightbox, a London-based mobile phone photo sharing servicewhich develops innovative mobile products.

5. Measurement. Lack of standard measurement could slow the shift of advertisingtowards Facebook. A February 2012 survey of 329 senior executives in NorthAmerica by management and digital consulting firm PulsePoint Group and theEconomist Intelligence Unit found that the majority of companies that had investedin social media reported a positive impact on sales. However, about 50% of theseexecutives stated that the lack of a standardized metric was a significant obstacleto determining a return on investment on social media campaigns. This difficultywas underscored by General Motors recent decision to stop spending $10 millionin advertising on Facebook.

6. Zynga. A shift away from Facebook by Zynga (ZNGA, HOLD) could be

detrimental to FBs revenue growth. Zynga represents approximately 12% of FBsrevenue. Currently, FB generates revenue by retaining up to 30% of the facevalue of user purchases in Zyngas games on the Facebook plus advertisingrevenue. This agreement expires in May 2015, at which time Zynga couldnegotiate a lower fee percentage with Facebook. Alternatively, Zynga could shift itusers from the Facebook platform to its own platform, which could lower both feeand advertising revenue for FB.

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7. The Dark Side. FB is a consumer-facing business with hundreds of millions ofusers. By implication, FB is subject to the full range of human emotions andfoibles.

Mean Girls. Bullying and bragging. Folks occasionally use FB to bully otherswith disastrous results- these tragedies end up in the press as a cautionarytale. Alternatively, users brag about their lives which makes other users

jealous and encourages them to use FB less. Body Image & Eating Disorders. A March 2012 study from the Center for

Eating Disorders at Sheppard Pratt in Maryland surveyed 600 Facebookusers, ages 16 to 40. More than half said that FB makes them more self-conscious about their bodies and weight. 75% of women (vs 58% of men)admitted they'd like to lose some weight. 40% of men (vs 20% of women) saidthey've posted negative comments about their bodies. From the study:"Facebook is an influential factor in developing severe eating disorders. Whenyou're unhappy with the way you look, it's easy to avoid mirrors, but it's toughto go without Facebook. Eighty percent of those surveyed log onto Facebookat least once a day. It's impossible to avoid seeing photos of yourself and yourfriends. But we're not just looking we're comparing. With FBs new profile

format, with a single a click you can see what you looked like five years ago,and the comparison can be depressing. Nearly 35% of people felt "sad" whencomparing photos of themselves and their friends, and 44% wished they hadthe same body or weight as a friend on Facebook.

Narcissists.a. A 1Q12 study from Western Illinois University showed a link between the

number of Facebook friends users have plus how active they are on FB tothe likelihood of being a socially disruptive narcissist. In a studypublished in the March 2012 journal entitled Personality and IndividualDifferences, among the 300 participants who took a NarcissisticPersonality Inventory questionnaire, those with more Facebook friends,who tagged themselves in photos and updated their status throughout the

day were more likely to have narcissistic traits. Facebook givesnarcissists the opportunity to exploit the site to get the feedback they needand become the center of attention states study author Chris Carpenter.

b. In 2010, a study published by York University in Canada asked 100students, 50 male and 50 female, aged between 18 and 25 about theirFacebook habits. Those who scored higher on the narcissism test checkedtheir Facebook pages more often each day than those who did not.Interestingly, men promoted themselves by written posts on theirFacebook page while women tended to carefully select the pictures in theirprofile.

8. Patents & Litigation Expenses. FB is the subject of a patent suit by YHOO. Inresponse, FB countersued YHOO and then purchased 615 patents from MSFT

(which MSFT had bought from AOL the prior week) for approximately $550mm.We believe that patent lawsuits will accelerate in the Internet space over the next12 months, and FB could be a prime target owing to its large size and potentialdamages upside. (Please see our report entitled Patent Wars: War ZoneEconomics dated April 16, 2012)

9. Video Strategy Not Ready for Prime Time. We believe that FBs platform shouldbe a natural haven for premium video content and views. However, in the firstquarter of 2012, FBs unique video viewers fell 8% y/y in the US to 45.1mm,according to comScore. Ironically, this decline is the opposite of third-party video

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sites where traffic is accelerating owing to FBs Open Graph integration. YouTubevideo views rose 2% and YHOO views rose 8% over the same time period.

EARNINGS ESTIMATES

In the following Table 1, we introduce our quarterly for FY12 and our annual estimates

for FY13.

Table 1

FYE Dec 31: 2Q12E 3Q12E 4Q12E 2012E 2013E

Net Rev Cur ($mm) $1,207 $1,287 $1,489 $5,041 $6,526

Previous ($mm) - - - - -

Consensus $1,180 $1,250 NA $4,960 $6,460

EPS Operati ng $0.11 $0.12 $0.15 $0.48 $0.60

Previous ($mm) - - - - -

Consensus $0.13 $0.13 NA $0.52 $0.66

P/E 64.5 52.3

Sources: Needham & Company estimates, Yahoo Finance

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Table 2

Facebook, Inc: Quarterly Income Statement Projections, 2012E

in mill ions, except per share data

3/31/12A 6/30/12E 9/30/12E 12/31/12E 2012E

Revenue Q1 Q2 Q3 Q4 2012EAdvertising $872 $993 $1,021 $1,179 $4,065 37% 28% 28% 25% 29%Payments and Other Fees $186 $214 $265 $310 $976 98% 80% 70% 65% 75%

Total Revenue $1,058 $1,207 $1,287 $1,489 $5,041 45% 35% 35% 32% 36%

Cost and Expenses

Cost of Revenue ($277) ($296) ($322) ($335) ($1,230) 66% 41% 36% 36% 43%Marketing and Sales ($159) ($169) ($174) ($194) ($695) 134% 64% 40% 47% 63%Research and Development ($153) ($169) ($193) ($208) ($724) 169% 71% 79% 68% 87%

General and Administrative ($88) ($97) ($116) ($127) ($426) 72% 27% 61% 58% 53%Total Costs and Expenses ($677) ($731) ($804) ($864) ($3,075) 97% 50% 49% 48% 57%

Income from Operations $381 $477 $482 $625 $1,966 -2% 17% 17% 14% 12%

Operating Margin 36% 40% 38% 42% 39%Other Expense, net

Interest Expenses, net ($13) $5 $5 $5 $2 -230% -133% -129% -125% -105%Other Income (Expense), net $14 ($965) $10 $10 ($931)

Income before Provision for Income Taxes $382 ($483) $497 $640 $1,037 -4% -223% 25% 21% -39%Provision for Income Taxes ($177) $174 ($179) ($227) ($410)

Net Income $205 ($309) $318 $413 $627 -12% -231% 34% 30% -37%Net Income Attributable to Participating Securities $68 $0 $0 $0 $68Net Income Attributable to Cl A and B Shareholders $137 ($309) $318 $413 $559 -10% -304% 106% 77% -16%

Add Back 1 Time Items $0 $618 $0 $0 $618

PF Net Income $137 $308 $318 $413 $1,177EPS, Reported $0.09 ($0.11) $0.12 $0.15 $0.23 -18% -209% 11% -5% -50%

EPS, Pro Forma $0.09 $0.11 $0.12 $0.15 $0.48

Diluted Shares Out. 1,522 2,747 2,747 2,747 2,441 9% 87% 87% 87% 68%Calculation of OIBDA:Operating Income $381 $477 $482 $625 $1,966 -2% 17% 17% 14% 12%

Depn & Amort $110 $125 $135 $145 $515 116% 38% 49% 60% 59%Stock Compensation $103 $100 $100 $100 $403 1371% 43% 43% 43% 86%

OIBDA $594 $702 $717 $870 $2,884 33% 24 25% 23% 26%

OIBDA Margin, Net 56.2% 58.1% 55.8% 58.5% 57.2%

Sources: Company Reports, Needham& Company estimates.

User Metrics

Monthly Active Users (MAU)

Total Monthly Active Users 901 940 970 1,000 1,000%growth y/y 32.4% 27.2% 21.3% 18.3% 18.3%

%growth q/q 6.6% 4.4% 3.2% 3.1% 3.1%

Revenue/MAUAdvertising $0.99 $1.03 $1.07 $1.13 $4.07

Payments and Other Fees $0.22 $0.22 $0.27 $0.32 $0.98Total Revenue per MAU $1.21 $1.25 $1.34 $1.45 $5.04

%growth y/y 6.1% -0.8% 8.1% 5.1% 14.8%

%growth q/q -12.3% 3.3% 7.2% 8.2%

Year/Year Change

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Table 3

Facebook, Inc: Segment Annual Financial Information, 2010A-2013E$ and shares in millions, except per share data

Annual

FYE 12/31: 2010A 2011A 2012E 2013E '10-'13 CAGRRevenue

Advertising $1,869 $3,154 $4,065 $5,160 40%Payments and Other Fees $105 $557 $976 $1,366 135%

Total Revenue $1,974 $3,711 $5,041 $6,526 49%Cost and ExpensesCost of Revenue ($493) ($860) ($1,230) ($1,566) 47%

Marketing and Sales ($184) ($427) ($695) ($914) 71%

Research and Development ($144) ($388) ($724) ($914) 85%General and Administrative ($121) ($279) ($426) ($522) 63%

Total Costs and Expenses ($942) ($1,954) ($3,075) ($3,915) 61%

Income from Operations $1,032 $1,757 $1,966 $2,610 36%Operating Margin 52% 47% 39% 40%

Other Expense, netInterest Expenses ($22) ($42) $2 $20

Other Income (Expense), net ($2) ($19) ($931) $0Income before Provision for Income Taxes $1,008 $1,696 $1,037 $2,630 38%

Provision for Income Taxes ($402) ($695) ($410) ($994) 35%Net Income $606 $1,000 $627 $1,637 39%Net Income Attributable to Participating Securities 234 332 68 0 -100%

Net Income Attr ibutable to Cl A and B Shareholders $372 $668 $559 $1,637 64%

EPS, Reported $0.28 $0.46 $0.23 $0.60 29%EPS, Operating 0.28 0.43 0.48 0.60 29%

Diluted Shares Out. 1,329 1,452 2,441 2,750 38%Calculation of OIBDA:

Income from Operations $1,032 $1,757 $1,966 $2,610 36%

Depn & Amort $139 $323 $515 $530 56%Stock Compensation $20 $217 $403 $600 211%

OIBDA $1,191 $2,297 $2,884 $3,740 28%

OIBDA Margin, Net 60% 62% 57% 57%Sources: Company Reports, Needham & Company estimates.

12-MONTH TARGET PRICE OF $40

Our target price of $40 is based on a DCF valuation. We use a WACC of 10.9% and along-term nominal GDP growth rate of 1%. The standard DCF is widely used on WallStreet because it is a rigorous bottom-up valuation of the enterprise based ondiscounting its long-term cash flows and removing the impact of non-cash accountingconventions. Positives and negatives of this valuation methodology are highlightedbeside the calculation in Table 4.

Our $40 target price embeds a 10-year EBITDA growth rate of 27.6% annuallybeginning in 2013 and represents a 30.4x multiple of forward year (2013E) OIBDA.

DETAILED VALUATION DISCUSSION

Internet PrecedentsIs FB the first consumer-facing global internet platform? No. We would suggest thatthere were at least 3 predecessor internet platforms. AOL was predominantly a USplatform, and therefore the least comparable to FB. YHOO and Google were bothpredecessor global Internet platforms. An analysis of how the market cap for each of

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these grew as a multiple of users is a helpful analysis for valuing FB, in our view. Inevery case, users lead revenue and market cap growth followed. Therefore, webelieve that users are the most helpful lead indicator to future valuation at the earlieststages of a global Internet platforms lifecycle.

AOL

Figure 3 shows AOLs user growth over most of the past 2 decades. Because AOLhad a closed garden in its early years, its users were called subscribers. We can seethat subscribers grew first, then revenue, and then market capitalization followed last.

Figure 3

AOL

0

30000

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Subs(000)&Revenue

($mm)

$0

$200,000

MktCap($mm)

AOL Subs (000)

Revenue ($mm)

Market Cap ($mm)

Source: Company reports, Needham & Co, LLP research.* We would suggest throwing out the market cap per subscriber metric in 1999, as it was the peak of the Internetbubble.

As illustrated from Figure 4 below, if we look at both revenue and market cap throughthe common prism of subscriber growth, we can see more clearly that market caplagged revenue per subscriber. In 2001 and 2002, we have subtracted our estimateof Time Warners value from AOL Time Warners market cap before dividing by AOLs

subscribers. We covered AOL Time Warners stock back then and have retained ourdetailed sum-of-the-parts estimates from that time. AOLs revenue per sub was about$400 and its market capitalization per sub was about $4,000 in 2002, suggesting avaluation multiple of 10x revenue.

Figure 4

AOL

$50 $52 $58

$142

$267

$222$208

$240

$275$287

$381

$140 $200$500

$2,333

$1,200$1,000

$4,200 $4,000 $3,846

$5,600

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1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

R

ev/Sub

$0

$10,000

MktCap/Sub

Revenue per Sub

Mkt Cap per Sub


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Conclusions from AOL AnalysisWhat can we conclude from the first 11 years of AOLs public market existence? Asillustrated in Figure 4 above, AOLs market cap lagged revenue per subscribergrowth, and the revenue multiple expanded for most of the early years. After AOLs1999 peak valuation of $10,000 per subscriber (41x revenue), AOLs market cap persubscriber settled down to $4,000 per subscriber in both 2001 and 2002 and its

revenue per user continued to rise.

Yahoo!Figure 5 shows Yahoos user growth for the first decade after it came public in 2Q96.Yahoo! was always an advertising-driven business model, so its user adoption wasmuch faster than AOLs. At the end of 1996, Yahoo! had 700,000 users, which grewto 1.2mm users over the next 4 years.

As evidenced by Figure 5, we again see unique visitors leading revenue growth, butin YHOOs case market cap lead revenue growth. We note that owing to the Internetbubble, the market cap got ahead of the revenue growth for 2 short years, after whichit corrected to reflect the revenue line with about a 2 year lead vs YHOO's revenue

growth.

Interestingly, YHOO s market cap peaked 2 years before its revenue peaked. It maybe a coincidence, but perhaps Googles early successes in 2004 and 2005 werediscounted into YHOOs market cap years before it appeared in YHOOs financialstatements.

Figure 5

Yahoo!

0

7500

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Subs&Rev($mm

)

$0

$60,000

MktCap($mm

Market Cap ($mm)

Revenue ($mm)

Unique Global Visitors (mm)

Source: Company reports, Needham & Co, LLP research.* We would suggest throwing out the market cap per subscriber metric in 1999, as it was the peak of the Internet

bubble.

As illustrated by Figure 6 below, if we look at both revenue and market cap throughthe common prism of subscriber/user growth, we can see more clearly that marketcap rose in anticipation of revenue per subscriber growth. (This analysis for YHOO iscomplicated by the Internet bubble.) The market cap/revenue multiplier was againstable at about 10x throughout the 2001 to 2005 period (6-10 years after goingpublic.) Figure 6 illustrates that YHOOs market capitalization lead its revenue growth

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by 1-2 years, and the market capitalization rolled over 2 years before the revenue persubscriber began to fall.

Figure 6

Yahoo!

$3$3

$5

$3

$6

$3

$4

$6

$9

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$13$14

$13

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$7

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$73 $65$30 $40 $35 $29

$0

$16

1996 1998 2000 2002 2004 2006 2008 2010

Rev/UniqueUser

$0

$750

MktCap/UniqueUser

Revenue per User

Mkt Cap per User


Conclusions from Yahoo! AnalysisWhat can we conclude from the first 16 years of Yahoos public market existence? Asillustrated in Figure 6 above, the market capitalization to revenue multiplier of YHOObegan at 20 (much like FB) and then doubled to 40 within 12 months. After theinternet bubble, YHOO market capitalization to revenue settled in at about 10x andthe market led the revenue per sub growth by about 2 years.

GoogleWe believe that GOOG is the most comparable consumer-facing global internetplatform to FB. GOOG was always an advertising-driven business model and itsglobal platform provided a valuable service to Internet users by creating a new way toindex internet content. Googles search function made the Internet easier to navigate.As a result, Googles user adoption globally was much faster than Yahoos andAOLs.

In 2005, one year after coming public, Google had 380mm unique visitors globally.This dwarfs the 800,000 unique users for Yahoo and 600,000 subscribers for AOLone year after they came public. Googles monthly unique visitors recently hit 1 billion

users be month, only 8 years after coming public. Importantly, Facebook had 901mmat 3/31/12, before it becomes a public company. Figure 7 shows Googles uniquemonthly visitors, revenue and market capitalization, since it became public in 2004.

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Figure 7

GOOG

-

1,000,000

2004 2005 2006 2007 2008 2009 2010 2011

Subs(000)&Rev($mm)

$0

$220,000

MktCap($m

m)

Unique Visitorys WW

Market Cap

Revenue

Source: Company reports, Needham & Co, LLP research.

As illustrated by figure 8 below, if we look at both revenue and market cap throughthe common prism of unique visitor growth, we can see clearly that GOOGs marketcap rose in anticipation of revenue per visitor growth. Googles market cap led itsuser growth in the early years. Since 2008 (the worst ad recession in 30 years),GOOGs multiple of revenue has been under pressure. Over the past 3 years,Googles valuation has been stable at around $200 of market cap per unique monthlyuser, and about 6-8x revenue.

Figure 8

GOOG

$31$28

$38

$32$28

$21$16

$234

$205

$210

$325$290

$404

$125

$0

$80

2005 2006 2007 2008 2009 2010 2011

Rev/UniqueUser

$0

$500

MktCap/UniqueUse

r

Revenue per User

Mkt Cap per User

Source: Company reports, Needham & Co, LLP research.

Conclusions from Google AnalysisGoogles market capitalization has generally led or been coincident with its growth ofunique users, although since FB began to gain traction in 2008 and the ad markethad its worst ad recession in 30 years, GOOGs market cap multiple has abouthalved from 13-14x in 2006 and 2007 to 6-8x in 2009, 2010 and 2011. We note thatthis mirrors YHOOs behavior when GOOG entered its market.

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Implications for Facebooks ValuationWe believe that the leading indicator of valuation for a global internet platform isconsumer adoption. There are no exit barriers on the Internet so the minute there is abetter mousetrap, consumers reallocate their time. Today, the FB platform has themost minutes spent by consumers globally.

Because each subsequent Internet platform comes into being at a more maturestage of the internet, there is faster consumer adoption and lower risk because thereare more visible revenue streams (proven economics) and therefore forward revenueoptionality is easier to assess.

What does this analysis imply about FBs Valuation? Is FB expensive or cheap?Lets take a look at the revenue per unique visitor since Yahoo and Google camepublic and compare it to FB. Figure 9 shows the revenue per unique user since eachcompany went public and shows that GOOGs higher valuation is tied to its higherrevenue per subscriber from the beginning. In FY12E, we expect Facebook to hitabout $6/unique vs $7 for YHOO vs $40 for Google. Yahoo hit a high of $14 and

Googles is still growing its revenue per unique global user. We note that FB hasbeen growing its unique users and engagement lengths per user at unprecedentedrates, which holds back its growth of revenue per user versus its peers.

Figure 9

Revenue per WW Unique User

$3$3

$5

$3

$7 7$6

$3

$4

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$40$38

$-

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1996 1998 2000 2002 2004 2006 2008 2010 2012E

0

5

10

1520

25

30

35

40

45

YHOO

GOOG

Facebook

Source: S-1, Needham & Co, LLP research.

Market capitalization is another interesting metric. Using year end share prices,Yahoos has been stable at 3-4 and googles has been at 6-8 over the past 3 years.

Both came public at a revenue multiple that rose over the first 12 months and thencame down as the revenue streams got reported in the P&L.

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Figure 10

Mkt Cap/Revenue Multiples

2140

106

219

17 14 10 18 15 11 5 5 2 4 3 4

17

20

14 13

4

87

6

-

50

100

150

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250

1996

1997

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1999

2000

2001

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2003

2004

2005

2006

2007

2008

2009

2010

2011

0

5

10

15

20

25

YHOO

GOOG

FB multiple:19x

Source: Company reports, S-1, Needham & Co, LLP research.

Other Valuation Metrics

Our BUY rating is based on several forms of valuation, summarized in Table 4 below.

1 EV/Sales 15.1 7 Breakeven DCF (Calculated as the

2 EV/OIDBA 26.4 10-Yr EBITDA CAGR required3 P/E 135.3 to justify current share price) 21.5%

4 FCF/Share $0.31

5 EV/FCF 89.9

6 FCF Yield 1%Sources: Needham & Company research & estimates.

2012E Valuation Multip les Embedded Expectation s Metri cs

Table 4: FB Valuation Summary & Conclusions

1. The Breakeven DCF valuation methodology uses the current share price tocalculate the markets growth expectations for the enterprise, including capitalefficiency trends. This valuation methodology concludes that FB must achieve a10-year OIBDA compound annual growth rate of approximately 21.5% to justifyits current share price. (Please see Table 6.)

2. In Table 7, we summarize several valuation multiples for Sales (15.1x), OIBDA(26.4x) and P/E (135.3x). FBs EV/FCF trading multiple is approximately 89.9x2012E and has a 1% FCF Yield in FY12E.

3. In Table 9, we present comparative valuation metrics.

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Table 5

Facebook: Standard DCF Calculat ion, 2013E-2022E

$ and shares in millions, except per share data

Valuation Conclusions % of Total Standard Discounted Cash Flow (DCF) Valuation

Sum of PV of Free Cash Flow 1 $44,603 36% Why We Calculate: DCF is a rigorous bottoms-up valuation

PV of Terminal Value Discounted a t WACC 1 $67, 652 55% of the ent erpri se focusing on cash f lows (no t account ing )

Value of Operations (WACC Method) $112,255 92% StrengthsPlus: Cash at 3/31/12A $10,312 1 Focuses on operations. Removes financing

Plus: Non-Consolidated Assets (From PMV) $0 2 Focuses on FCF. Removes non-cash accountingLess: Minority Interest $0 3 Explicitly forecasts capital needs (WC & CapX)Less: Unfunded Retirement Liabilities $0 3 Uses a levered beta (widely available)

Enterprise Value $122,567 100% 4 Ent value focus captures entire business modelDebt at 3/31/12A $0

Less: Lease Obligations ($1,400) WeaknessesLess: Preferred Stock Outstanding $0 1 Many assumptions. Valuation can be manipulatedLess: Value of Options & Restricted Sk, After-tax ($11,000) 2 Terminal value big & based on low visi blity projections

Common Equity Value $110,167 90% 3 Model assumes constant debt/equity ratioFully Diluted Shares Out, 2013E 2,750 4 Complex to calculate

DCF Value/Share $40.06 5 Calculates the enterprise value first, then equity valueCurrent Share Price @ 5/22/12 $31.00

Upside Potential (DCF-Current Price/Current Price) 29%

1 Calculation of the Value of Operations (WACC Method) CAGR

FYE 12/31: 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E '13-22E

OIBDA (after sk compexp & corp): $2,884 $3,679 $4,693 $5,987 $7,638 $9,744 $12,430 $15,857 $20,229 $25,806 $32,920 27.6%- Depreciation ($515) ($530) ($675) ($1,326) ($1,289) ($1,175) ($1,189) ($1,156) ($1,054) ($1,067) ($1,297)+ Option Exercise Proceed $50 $50 $50 $40 $30 $30 $30 $30 $30 $30 $30

+ Int & Inv Income only $10 $10 $10 $10 $10 $10 $10 $10 $10 $10 $10EBIT $2,429 $3,209 $4,078 $4,712 $6,389 $8,609 $11,281 $14,741 $19,215 $24,779 $31,664Cash Ta xes (a t 3 5%) ($ 48 6) ($ 1,1 23 ) ($ 1,42 7) ($ 1,64 9) ( $2 ,2 36 ) ($ 3,01 3) ( $3 ,9 48 ) ($ 5,15 9) ($ 6,7 25) ($ 8,6 73 ) ($ 11 ,0 82 )Plus: Depreciation $515 $530 $675 $1,326 $1,289 $1,175 $1,189 $1,156 $1,054 $1,067 $1,297

Plus: Sk Based Comp Exp $403 $600 $185 $180 $175 $170 $165 $160 $150 $140 $140Working Capital Change $100 $272 $255 $188 $183 $166 $168 $164 $149 $151 $184

Less: Capital Spending ($1,700) ($1,600) ($1,500) ($1,105) ($1,074) ($979) ($991) ($964) ( $878) ($889) ($1,081)

FCF from Operations $1,261 $1,888 $2,266 $3,651 $4,725 $6,128 $7,864 $10,098 $12,965 $16,575 $21,121 30.8%

PV Discounted at WACC 2 $1,812 $1,961 $2,851 $3,328 $3,893 $4,507 $5,220 $6,045 $6,972 $8,014Sum of PV of Free Cash Flow $44,603

Terminal Value of 2022E FCF3

$178,305

PV of Terminal Value a t WACC2

$67,652

Discount Period 0 1 2 3 4 5 6 7 8 9

2 Calculat ion of WACC: (Updated 8/20/11) 3 Calculation of Terminal Multiple (WACC Method)

10-Year Risk Free Rate ("RFR") 2.0% WACC 10.9%Equity Risk Premium (Ibbotson-Arithmetic) 6.0% Long-term Nominal GDP Growth 1.0%Beta (Needham Estimate) 1.60 WACC-GDP Growth 9.9%Target Equity/(Debt + Equity) 90% FCF Terminal Mult ip le [1/ (WACC-Growth Rate)] 8.4Theoretical Debt Rating BBB EBITDA Terminal Mutiple 5.4Debt Spread 5.0%Marginal Tax Rate ("T") 40.0%

WACC 10.9%(RFR+(Equity Risk Premium x Beta)) x % Equity/Total Capital +

((RFR + Debt Spread) x (1-T) x % Debt/Total Capital). Sources: Company Reports, Needham & Company estimates.

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Table 6

Facebook: Breakeven Discounted Cash Flow (DCF) Valuatio n Calculati on, 2013E - 2022E$ and shares in millions, except per share data

Valuation Conclusions 12/31/12E Breakeven Discounted Cash Flow Valuat ion

Sum of PV of Free Cash Flow 1 $34,348 Why We Calculate: BE DCF uses the current share price to

PV of Terminal Value Discounted at WACC 1 $5 2,9 95 calcu late th e ma rket 's gro wt h exp ectat io ns f or t he en te rp rise.

Value of Operations (WACC Method) $87,342 Strengths

Plus: Cash at 3/31/12A $10,312 1 Makes no assumption about growth for first 10 years

Plus: Non-Consolidated Assets (From PMV) $0 2 Prevents over-optimism by working backwardsLess: Minority Interest $0 3 Data widely available and model well understoodLess: Unfunded Retirement Liabilities $0 4 Explicitly forecasts capital needs (WC & CapX)

Enterpr ise Value $97,654 5 Uses a levered beta (widely available)Debt at 3/31/12A $0Less: Lease Obligations ($1,400)Less: Preferred Stock Outstanding $0 WeaknessesLess: Value of Options & Restricted Sk, After- tax ($11,000) 1 Termi nal value big & based on low vi sibli ty pr ojecti ons

Common Equity Value $85,254 2 Model assumes constant debt/equity ratioFully Diluted Shares Out, 2013E 2,750 3 Complex to calculateBreakeven DCF Value/Share $31.00 4 Calculates the enterprise value first, then equity valueCurrent Share Price @ 5/22/12 $31.00Discount to DCF Val ue (DCF-Current Pr ice/DCF) 0%

1 Calculation of the Value of Operations (WACC Method) Required LT

FYE 12/31: 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E Growth RateOIBDA (after sk comp exp &corp): $2,884 $3,740 $4,545 $5,523 $6,712 $8,156 $9,911 $12,044 $14,636 $17,786 $21,614 21.5%

- Depreci ation ($515) ($530) ($675) ($1,326) ( $1,289) ($1,175) ($1,189) ($1,156) ($1,054) ($1,067) ($1,297)+ Option Exercise Procee $50 $50 $50 $40 $30 $30 $30 $30 $30 $30 $30

+ Int & Inv Income only $10 $10 $10 $10 $10 $10 $10 $10 $10 $10 $10EBIT $2,429 $3,270 $3,930 $4,248 $5,463 $7,022 $8,762 $10,928 $13,623 $16,759 $20,357Cash Taxes (a t 35%) ($ 48 6) ($1 ,1 45 ) ($ 1,37 6) ($ 1,487 ) ($1 ,9 12 ) ($ 2,458 ) ($3 ,067 ) ($ 3,825) ($4 ,7 68 ) ($ 5,86 6) ($ 7,125)Plus: Depreciation $515 $530 $675 $1,326 $1,289 $1,175 $1,189 $1,156 $1,054 $1,067 $1,297

Plus: Sk Based Comp Exp $403 $600 $185 $180 $175 $170 $165 $160 $150 $140 $140Working Capital Change $100 $272 $255 $188 $183 $166 $168 $164 $149 $151 $184Less: Capital Spending ($1,700) ( $1,600) ($1,500) ($1,105) ( $1,074) ( $979) ($991) ($964) ($878) ($889) ($1,081)FCF from Operations $1,261 $1,928 $2,170 $3,350 $4,123 $5,096 $6,227 $7,620 $9,330 $11,362 $13,772

PV Discounted at WACC2

$1,850 $1,878 $2,615 $2,904 $3,238 $3,569 $3,939 $4,350 $4,779 $5,225Sum of PV of Free Cash Flow $34,348

Terminal Value of 2022E FCF3

$139,674

PV of Terminal Value at WACC 2 $52,995Discount Period 0 1 2 3 4 5 6 7 8 9

2Calculati on o f WACC: (Updated 8/20/11)

3Calculation of Terminal Multiple (WACC Method)

10-Year Risk Free Rate ("RFR") 2.0% WACC 10.9%Equity Risk Premium (Ibbotson-Arithmetic) 6.0% Long-term Nominal GDP Growth 1.0%Beta (Needham Estimate) 1.60 WACC-GDP Growth 9.9%Target Equity/(Debt + Equity) 90% FCF Terminal Multiple [1/(WACC-Growth Rate)] 10.1Theoretical Debt Rating BBB EBITDA Terminal Mutiple 6.5

Debt Spread 5.0%

Marginal Tax Rate ("T") 40.0%WACC 10.9%

(RFR+(Equity Risk Premium x Beta)) x % Equity/Total Capital +((RFR + Debt Spread) x (1-T) x % Debt/Total Capital). Sources: Company Reports, Needham & Company estimates.

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Table 7 Table 8

Facebook: Valuation Multiples (Sales, OIBDA, P/E) Facebook: Free Cash Flow Valuation Metrics$ and shares in millions, except per share data $ and shares in millions, except per share data

Valuation Conclusions 2012E Valuation Conclusions 2012E

Market-Based Enterprise Value 1 $76,235 FCF/Share 2 $0.31

2012E Sales (From Annual Projections) $5,041 Current Price 5/22/12 $31.00

EV/Sales 15.1 FCF Yield 1%

Market-Based Enterprise Value 1 $76,235 FCF 2 $848

2012E OIBDA (From Annual Projections) $2,884 2012E OIBDA (From Annual Projections) $2,884

EV/2011E OIBDA 26.4 FCF Conversion Rate (FCF/OIBDA) 29%

Market-Based Enterprise Value 1 $76,235

12-Month Target Price $40.00 FCF $848

Target Price EV/2013E OIBDA 30.4 EV/FCF 89.9

Current Price 5/22/12 $31.00 Net Debt/OIBDA (3.6)

2012E EPS (From Annual Projections) $0.23 Net Debt + Unfunded Retirement Liabs ($10,312)

P/E Ratio 135.3 Net Debt/Market Cap -12.1%

1Calculation of Market-Based Enterprise Value 2 Calculation of Free Cash Flow

Year End 12/31: 2012E Year End 12/31: 2012E

Current Share Price 05/22/12 $31.00 OIBDA $2,884

Fully Diluted Shares Out 2,747 Plus: Option Exercise Proceeds $50

Market Capitalization $85,147 Less: Cash Interest Expense $0

Minority Interest $0

Less: Excess Cash & Mktable Debt Sec ($10,312) Less: Preferred Dividends $0

Less: Non-Consolidated Assets (See PMV) $0 Less: Cash Taxes ($486)

Plus: Unfunded Retirement Liabilities $0 Less: Change in Working Capital $100Plus: Debt @ 12/31/12 $0 Less: Capital Spending (PP&E) ($1,700)

Plus: Lease Obligations $1,400 Free Cash Flow $848

Plus: Preferred Stock Outstanding $0

Plus: Value of Options Restricted Sk $11,000 Shares Outstanding 2,747

Market-Based Enterprise Value $76,235 FCF/Share $0.31

Sources: Company Reports, Needham & Company estimates. Sources: Company Reports, Needham & Company estimates.

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Table 9

Needham & Company - Comparable Table: Internet and Digital Media UniverseKerry Rice, CPA (415) 262-4890 [email protected]

Price Market 12'-13' 12'-13' 12'-13' EBITDA

Ticker Company 5/22/12 Cap. CY12E CY13E CY12E CY13E Y/Y % CY12E CY13E CY12E CY13E Y/Y% EV CY12E CY13E CY12E CY13E Y/Y % MarginFB Facebook, Inc. $31.07 $85,339 64.4 52.2 $0.48 $0.60 23% 16.3 12.6 $5,041 $6,526 29% $82,135 28.5 22.0 $2,884 $3,740 30% 57%

Large CapAMZN AMAZON.COM INC $215.36 $99,066 180.3 83.1 $1.19 $2.59 117% 1.5 1.1 $63,428 $81,749 29% $93,351 31.5 22.6 $2,965 $4,130 39% 5%EBAY EBAYINC $39.36 $51,483 16.7 14.4 $2.36 $2.73 16% 3.4 3.0 $14,015 $16,055 15% $47,702 10.5 9.2 $4,541 $5,190 14% 32%GOOG GOOGLEINC $600.61 $238,473 13.9 11.8 $43.30 $50.71 17% 5.5 4.6 $35,456 $42,172 19% $194,612 10.4 8.6 $18,733 $22,585 21% 53%LNKD LINKEDINCORP $101.53 $11,301 151.6 82.0 $0.67 $1.24 85% 11.8 7.9 $905 $1,345 49% $10,680 58.5 34.5 $183 $310 70% 20%YHOO YAHOOINC $15.31 $18,771 16.1 14.2 $0.95 $1.08 13% 3.7 3.6 $4,470 $4,586 3% $16,694 10.5 9.8 $1,590 $1,702 7% 36%

Mean 75.7 x 41.1 x 50% 5.2 x 4.1 x 23% 24.3x 16.9x 30% 29%

Internet MediaAOL AOL INC $27.13 $2,577 26.0 26.0 $1.05 $1.04 0% 1.1 1.1 $2,117 $2,095 -1% $2,323 6.8 6.7 $340 $345 1% 16%DMD Demand Media Inc. $9.36 $776 27.9 22.3 $0.34 $0.42 25% 1.9 1.7 $352 $399 13% $681 7.3 6.2 $94 $109 17% 27%EHTH EHEALTH INC $17.02 $348 55.2 40.8 $0.31 $0.42 35% 1.5 1.4 $156 $169 9% $232 11.1 9.0 $21 $26 23% 13%GOOG GOOGLEINC $600.61 $238,473 13.9 11.8 $43.30 $50.71 17% 5.5 4.6 $35,456 $42,172 19% $194,612 10.4 8.6 $18,733 $22,585 21% 53%IACI IAC/INTERACTIVECORP $45.23 $4,148 16.3 13.3 $2.77 $3.40 23% 1.3 1.2 $2,664 $2,970 11% $3,469 7.3 6.2 $476 $559 17% 18%INSP INFOSPACE INC $12.72 $521 11.7 10.6 $1.09 $1.20 10% 1.3 1.1 $379 $421 11% $476 6.5 5.5 $73 $87 19% 19%MOVE MOVE INC $8.20 $322 22.5 15.8 $0.37 $0.52 42% 1.2 1.1 $198 $209 6% $231 8.5 6.6 $27 $35 28% 14%P Pandora MediaInc. $10.15 $1,660 N/M 358.6 ($0.13) $0.03 NM 3.9 2.6 $404 $593 47% $1,570 N/M 119.9 ($19) $13 -169% -5%TZOO TRAVELZOO INC $23.70 $380 15.5 14.1 $1.53 $1.68 10% 2.1 1.9 $157 $175 11% $331 8.2 7.3 $40 $45 12% 26%TRIP TripAdvisor Inc. $42.75 $5,821 28.8 23.6 $1.48 $1.81 22% 7.8 6.5 $772 $922 19% $6,027 18.2 15.1 $331 $399 20% 43%VCLK VALUECLICK INC $17.56 $1,442 14.6 13.4 $1.20 $1.31 9% 2.0 1.8 $714 $779 9% $1,439 6.7 5.9 $216 $245 14% 30%

WBMD WebMD Health Corp. $22.16 $1,238 32.1 26.3 $0.69 $0.84 22% 1.8 1.7 $504 $530 5% $895 9.5 8.3 $94 $108 14% 19%XOXO XOGROUP INC $9.05 $240 30.7 23.1 $0.30 $0.39 33% 1.3 1.2 $135 $145 7% $172 7.8 6.2 $22 $28 26% 16%YELP Yelp Inc. $18.01 $1,101 N/M 346.5 ($0.19) $0.05 NM 7.4 5.3 $130 $185 41% $970 N/M N/M ($5) $11 -335% -3%

YHOO YAHOOINC $15.31 $18,771 16.1 14.2 $0.95 $1.08 13% 3.7 3.6 $4,470 $4,586 3% $16,694 10.5 9.8 $1,590 $1,702 7% 36%Mean 23.9 x 64.0 x 20% 2.9 x 2.5 x 14% 9.1 x 15.8 x -19% 21%

E-CommerceAMZN AMAZON.COMINC $215.36 $99,066 N/M 83.1 $1.19 $2.59 117% 1.5 1.1 $63,428 $81,749 29% $93,351 31.5 22.6 $2,965 $4,130 39% 5%AWAY HOMEAWAYINC $24.50 $2,070 50.3 37.8 $0.49 $0.65 33% 6.5 5.4 $283 $344 22% $1,847 23.3 18.2 $79 $102 28% 28%NILE BLUE NILE INC $30.54 $431 45.5 37.6 $0.67 $0.81 21% 0.9 0.9 $391 $431 10% $371 17.7 15.1 $21 $24 17% 5%DRIV DIGITAL RIVER INC $14.43 $533 11.8 10.6 $1.22 $1.36 11% N/M N/M $406 $432 6% $184 2.3 2.0 $81 $93 15% 20%EBAY EBAYINC $39.36 $51,483 16.7 14.4 $2.36 $2.73 16% 3.4 3.0 $14,015 $16,055 15% $47,702 10.5 9.2 $4,541 $5,190 14% 32%EXPE EXPEDIA INC $42.74 $5,954 15.0 13.0 $2.84 $3.30 16% 1.4 1.2 $3,819 $4,195 10% $5,182 6.9 6.1 $753 $844 12% 20%GRPN Groupon Inc. $11.85 $7,633 63.8 17.9 $0.19 $0.66 256% 2.7 2.1 $2,398 $3,068 28% $6,510 18.0 9.1 $361 $713 98% 15%LQDT LIQUIDITY SERVICES INC $62.71 $2,056 35.3 28.2 $1.78 $2.22 25% 4.1 3.4 $486 $581 20% $1,991 20.0 15.7 $100 $127 28% 21%MELI MercadoLibre Inc. $76.11 $3,360 33.8 25.5 $2.25 $2.98 32% 8.1 6.3 $396 $511 29% $3,202 22.6 17.1 $142 $187 32% 36%OWW ORBITZ WORLDWIDEINC $3.23 $339 12.2 8.3 $0.26 $0.39 47% 0.7 0.7 $812 $867 7% $591 4.3 3.9 $138 $153 11% 17%PETS PetMed Express Inc. $11.54 $235 14.7 13.5 $0.79 $0.86 9% 0.7 N/A $245 N/A N/A $182 6.8 6.0 $27 $31 14% 11%PCLN PRICELINE.COM INC $660.01 $33,890 20.8 16.6 $31.75 $39.68 25% 5.6 4.6 $5,480 $6,726 23% $30,841 15.3 12.1 $2,022 $2,547 26% 37%SFLY SHUTTERFLY INC $25.31 $902 N/M 51.8 $0.15 $0.49 222% 1.3 1.1 $580 $671 16% $758 7.6 6.0 $99 $127 28% 17%VPRT VISTAPRINT NV $36.90 $1,426 18.9 15.6 $1.96 $2.36 21% 1.3 1.1 $1,156 $1,376 19% $1,505 11.0 9.4 $137 $160 17% 12%

Mean 31.4 x 25.3 x 79% 2.3 x 2.1 x 16% 12.3 x 9.5 x 27% 16%

Internet MarketingACTV ACTIVE NETWORK INC $13.15 $765 N/M N/M ($0.60) ($0.15) NM 1.6 1.3 $431 $507 18% $682 12.7 9.1 $54 $75 39% 13%SCOR COMSCOREINC $17.96 $634 14.9 12.5 $1.21 $1.44 19% 2.2 1.9 $278 $323 16% $604 10.3 8.2 $59 $74 25% 21%CTCT CONSTANT CONTACT INC $21.21 $660 24.2 18.9 $0.88 $1.12 28% 2.0 1.8 $253 $294 16% $517 11.0 8.9 $47 $58 23% 19%LPSN LIVEPERSON INC $16.23 $915 39.2 32.9 $0.41 $0.49 19% 5.0 4.1 $162 $196 21% $807 20.3 16.4 $40 $49 24% 25%QNST QUINSTREET INC $8.00 $366 9.2 9.0 $0.87 $0.89 2% 1.0 1.0 $366 $373 2% $359 4.9 4.9 $73 $73 0% 20%MKTG RESPONSYS INC $10.75 $572 48.9 34.9 $0.22 $0.31 40% 2.9 2.4 $164 $195 19% $475 18.2 13.8 $26 $34 32% 16%RLOC REACHLOCAL INC $9.01 $262 N/M 86.2 ($0.09) $0.10 NM 0.4 0.3 $442 $519 17% $171 8.6 5.0 $20 $35 73% 5%SAPE SAPIENT CORP $10.56 $1,520 16.2 13.2 $0.65 $0.80 23% 1.1 1.0 $1,151 $1,332 16% $1,316 8.8 7.2 $150 $182 21% 13%TTGT TECHTARGET INC $5.65 $231 18.3 16.5 $0.31 $0.34 11% 1.7 1.6 $107 $112 5% $181 7.4 6.6 $25 $27 11% 23%VOCS VOCUSINC $14.87 $290 38.0 23.0 $0.39 $0.65 66% 1.6 1.3 $167 $202 21% $266 17.7 10.8 $15 $25 64% 9%

Mean 24.9 x 25.9 x 26% 1.7 x 1.6 x 15% 11.4 x 8.7 x 30% 15%

Internet ServicesACOM Ancestry.com Inc. $21.95 $1,003 14.0 11.2 $1.57 $1.96 25% 2.0 1.8 $465 $529 14% $951 6.0 5.1 $159 $187 18% 34%ANGI Angie's List Inc. $12.43 $709 N/M N/M ($0.97) ($0.41) NM 4.2 2.9 $152 $224 47% $639 -12.9 -37.4 ( $50) ($17) -65% -33%DHX Dice Holdings Inc. $10.10 $680 16.9 14.4 $0.60 $0.70 17% 3.1 2.8 $198 $220 11% $612 7.6 6.8 $80 $90 12% 41%MWW Monster Worldwide Inc. $8.76 $1,030 29.9 19.3 $0.29 $0.45 55% 1.0 1.0 $990 $1,033 4% $991 6.3 5.5 $157 $182 16% 16%NFLX NETFLIXINC $67.89 $3,769 630.1 30.5 $0.11 $2.23 1967% 0.9 0.8 $3,625 $4,241 17% $3,364 28.1 9.7 $120 $348 191% 3%OPEN OPENTABLEINC $39.47 $915 25.3 20.9 $1.56 $1.88 21% 5.3 4.5 $162 $192 18% $857 13.3 10.7 $64 $80 24% 40%RATE Bankrate Inc. $18.31 $1,862 22.1 17.3 $0.83 $1.06 28% 3.7 3.1 $532 $635 19% $1,992 12.0 9.7 $166 $205 24% 31%RNWK RealNetworks Inc. $8.60 $297 N/M N/M ($1.37) ($0.79) NM 0.5 0.5 $278 $278 0% $130 -5.6 N/A ($23) N/A N/M -8%

STMP STAMPS.COM INC $24.58 $422 16.4 13.8 $1.50 $1.78 19% 3.2 2.8 $116 $132 14% $373 17.3 14.2 $22 $26 22% 19%

WWWW WEB.COM GROUP INC $15.15 $736 10.0 7.9 $1.52 $1.91 26% 2.9 2.8 $487 $521 7% $1,433 9.9 8.7 $145 $164 14% 30%Z Zillow Inc. Cl A $36.94 $1,145 130.7 54.5 $0.28 $0.68 140% 9.6 6.7 $111 $159 44% $1,062 51.1 28.8 $21 $37 77% 19%

Mean 90.6 x 19.8 x 233% 3.1 x 2.5 x 17% 11.3 x 5.8 x 31% 17%

Overall Mean 44.1 x 36.2 x 82% 2.7 x 2.3 x 16% 12.2 x 10.8 x 17% 19%

PE Ratio EPS EV/S Ratio Revenue EV/EBITDA EBITDA

Source: Needham & Company Research

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FACEBOOK BUSINESS DESCRIPTIONWhat is Facebook?FB is a social networking service that can be found at Facebook.com. As of March31, 2012, on a global basis, FB had 125 billion friendships, 901mm monthly activeusers, 526 million daily active users, 3.2 billion likes and comments each day, and300mm photos uploaded every day, according to FBs S-1 filing.

To use FB, users must register and create a personal profile and then add otherusers as friends. They can then send messages and receive automatic notificationswhen anyone in their network updates their profile. Users can create profiles withphotos, lists of personal interests, contact information, and other personalinformation. Users can communicate with friends and other users through private orpublic messages and a chat feature. They can also create and join interest groupsand "like pages". (Source: FB S-1.)

A 2012 Pew Internet and American Life study identified that between 2030% ofFacebook users are "power users" who frequently link, poke, post and tagthemselves and others. Users may join common-interest user groups, organized byworkplace, school or college, or other characteristics, and categorize their friends intolists such as "People From Work" or "Close Friends", etc. A DoubleClick studyreported that that FB hit one trillion pageviews in the month of June 2011.

As illustrated in Figure 11, FBs Monthly and Daily Active Users have been growingrapidly and consistently for the past 13 quarters.

Figure 11

Source: Facebook S-1

FB Growth Benefits from Closing the Advertising Gap.

We believe that revenue follows time spent. We expect advertising dollars to flow towards FBbecause it has the largest and most engaged user base. To date, spending has lagged theamount of time users spend on social networking sites. This is similar to the spending lag thatoccurred as traditional offline advertising spending moved online, as illustrated in Figure 12. Webelieve this gap will close.

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Figure 122011 Gap between Time Spent Online and Advertising Highlights the Online GrowthOpportunity

40%

36%

5%3%

15%

40%

18%

7%

11% 11%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

TV Internet Newspaper Magazines Radio

%o

fTimeandAdvertisingBudge

t

% of Time Spent % of Advertising Spending

18% Gap

Source: eMarketer (2010), MagnaGlobal (2011), Needham & Co, LLC.

The Gap between Spending and Time on Social Media Should Close

Although 14% of online time is spent on FB, 67% of marketers spend 5% or less of theirmarketing budget targeting social media. Even by 2014, 45% of marketers budgets targetingsocial media could be less than 10% of their marketing budget, according to studies. Social mediagrowth is still early in its growth cycle. We expect the gap between time spent and revenue tonarrow as marketers allocate more of their advertising budgets to social media. Figure 13 showsthe percent of companies that spent under 5% to over 20% of their marketing budget on social

media in 2011. We believe this gap will close.

Figure 13While Marketers Advertising Spending on Social Media Should Grow Significantly over theNext Three Years, We Remain Early in the Growth Cycle

0%

10%

20%

30%

40%

50%

60%

70%

80%

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Authentic Identity is a Competitive Advantage of FB

Because FB is based on sharing with your friends, people normally use their authentic identity andshare their true interests and concerns with their friends. This creates unique value forconsumers, but also gives FB a competitive advantage compared with most other sites on the

Web.

Because users share information that reflects their real interests and demographics, advertisershave better odds of reaching an audience with higher accuracy rates compared to online industryaverages. For example, FB campaigns targeted at adults 25-49 are often able to reach thedesired audience with 95% accuracy as measured by industry-standard analytics tools. Thiscompares to an industry average of 72%, as publicly reported by Nielsen in 2011.

For more narrowly targeted campaigns, for example, females between the ages of 25 and 34,Facebook was able to reach the desired audience with 90% accuracy compared to an industryaverage of 35%.

Facebooks advertising platform should be able to increase relevancy over time as users maintainand expand their usage on FB, and increasingly share their interests and preferences regardingproducts and services.

Personalization Drives FB Value

The very personal nature of the FB platform has the ability to enhance the believability of ads.Together, Nielsen and Facebook studied this issue. Nielsen analyzed 79 Facebook advertisingcampaigns over a period of six months and found that 76% of U.S. Internet users said that theymost trusted recommendations from personal acquaintances (ie, friends).

Facebook offers tools to advertisers to display social context (like friends comments) alongside

their ads. As a result, advertisers are able to differentiate their marketing messages with trustedrecommendations from a users friends. The Nielsen/Facebook study found that ads with a socialcontext had > 50% lift in ad recall vs FB ads that did not have social context.

Personalization enhances the relevance of ads. The holy grail is serving the right ad to the rightperson at exactly the right time. The FB platform allows advertisers to deliver their ads to a subsetof FB users such as targeted by age, location, gender, education, work history, specific interests,etc. Advertisers can select audiences for their ads based on many metrics. These ad campaignscan target millions of users or hundreds of users. The flexibility of the FB platform and targetingmaximizes the number of advertisers that can use the FB platform over time.

FB Usage Trends Benefit from Smart Phone Adoption.

In March 2012, Facebook highlighted that over 50% of its monthly active users (or 488 millionusers) accessed Facebook through mobile devices. The number of mobile Facebook usersincreased 4x from March 2010 and 39% over the last six months. Increased mobile usage was aprimary contributor to Facebooks overall daily active user growth of 33%.

Despite the rapid growth in mobile users, mobile access does not appear to be cannibalizing FBsdesktop usage, given the continued strong growth in unique visitors to Facebooks PC website,which increased 21% y/y in March of 2012.

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While today nearly 33% of the total U.S. mobile users and 24% of the five leading Europeanmarkets users access social networking sites at least once a month, according to comScore, webelieve significant growth opportunities remain as smartphone adoption grows. The top threemobile activities on social networking sites were: 1) posting status updates; 2) reading posts frompeople they know; and 3) reading posts from organizations, brands, and events.

FACEBOOK MANAGEMENT SUMMARY

Mark Zuckerberg, Chairman and Chief Executive Officer. Mr. Zuckerberg has served as theCompanys CEO since 2004. He attended Harvard College and studied Computer Science.While at Harvard, he wrote a program called CourseMatch, which helped students choose classesbased on the choices of other students, as well as to assist in forming study groups. He co-founded the predecessor to FB, along with 3 others, in 2004, and soon left Harvard beforereceiving his degree to focus full time on FB. He is the largest individual shareholder of FB withan approximate 28.4% ownership share.

Sheryl Sandberg, Chief Operating Officer. Ms. Sandberg has served as COO since March,2008. Prior to her employment with FB, she worked at Google from 2001 to 2008, where she

served in a variety of positions, her most recent as Vice President, Global Online Sales &Operations. Ms. Sandberg graduated from Harvard College with a degree in Economics and shereceived an MBA from Harvard University.

David Ebersman, Chief Financial Officer. Mr. Ebersman has served as CFO of FB sinceSeptember, 2009. Prior to his employment at FB, Mr. Ebersman worked at Genentech from 1994to 2009, where his most recent position was as CFO. Mr. Ebersman graduated from BrownUniversity with a degree in Economics and International Relations.

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APPENDIX A

PROPRIETARY SURVEY OF FACEBOOK USERS

We completed a proprietary online survey of 100 Facebook users worldwide in Mayof 2012. Facebook is a global platform and therefore our survey was global with 63%of respondents from the US, 25% from Asia (including India), and 12% from Europe.

Their average age was 32, and the range of participants was 21 to 62 years old.Virtually all of the respondents said they visited Facebook at least once a day, andmany said 3-5 times each day. Most said they spend 20-60 minutes per day. Weasked them each 7 questions. The most interesting findings from this study included:

Respondents each wrote out 4 and 5 positives about FB, but only 1 or 2negatives each.

The positives were largely grouped around 3 categories- engagement, reachand relevance - while the negatives were much more dispersed.

About 25% said they would try to buy FB shares after it became public.

C.U.E. Drives Upside Valuations for FB.In the first question, we asked survey participants to write down in their own words

(ie, no boxes to check off) what they liked most about facebook. We got 400unaided answers.. The majority of What I like answers were tightly grouped andfell into in 3 primary forms of Value-Added: Communication, Ubiquity, andEntertainment. We think of these Facebook value drivers as C.U.E. We also callthese engagement, reach and relevance, which are key drivers of FBs valuation.Several examples are included below.

Communication Value Connecting with Others100% of respondents listed the Communication Value of FB among the top 5 likes.The granularity was more interesting, as evidenced by a sample of their wordsbelow: to keep in touch with family and friends and share my life (especially

photo updates) I use it to find people with similar interests, such as music The possibility to exchange ideas with other people from other parts of the

world find old friends who I havent spoken to in years know my friends and family plans for the week

Ubiquity & Efficiency Value40% of respondents listed the Efficiency Value of FB among the top 5 likes.Representative comments are included below:

I like how almost everybody has one and Virtually everyone that I want to

keep in touch with uses Facebook Facebook is available on a lot of devices/platforms I can message people for whom I do not have phone numbers Easy to organize & publicize events The like button allows me to acknowledge that I know about something

without having a full conversation I like begin able to keep up on others lives without talking to them

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Entertainment Value30% of respondents listed the Entertainment Value of FB among the top 5 likes.Entertainment value elongates time spent on the FB site and drives higher revenueupside optionality. Representative comments are included below: The first thing I do when I have time free is facebook. After that, Ill play video

games or watch Netflix or TV. Find out whats going to happen on my favorite cable shows before they air

and You can watch videos, sports and news on there Its fun to see whats going on in video, jokes, news releases real time

and There is some truly funny stuff I like how you can interact and play games at the same exact time and I

like the Facebook games

Downside Risks to FBIn the second question, we asked survey participants to write down in their ownwords (ie, no boxes to check off) what they liked leastabout facebook. We got 200unaided answers. What we found interesting about the negative responses was thelack of consensus view. Answers were much more dispersed than what they liked,

with no more than 20% of respondents citing any one category of negatives. The top5 cited categories of dont like responses were: Security issues Overuse/narcissism/banality of some people & comments Perception that FB sells information to private companies

FB makes money using data they derive from users Fake users and accounts People you dont want to talk to can find out what youre up to

Implications? We think the dispersion of these answers implies that users are NOTturning off their FB because of them. We think this implies that consumers aregenerally happy with FB, which supports FBs deep consumer penetrations and thelong engagement times on the FB platform.

Competitive PositionWhen asked whether there were any Internet services that folks liked better than FB,62% of respondents said no. Of the balance, Google and Twitter were the mostfrequently mentioned, followed by Linked-In, Last.fm, and Pinterest.

Usage TrendsWhen asked how much time they spent per day on FB, the answers generally rangedbetween 20 and 60 minutes per day. When asked whether they use FB more or lessthan one year ago, 60% said they used it more and 30% said they used it less. Thebalance said no change. We think these trends underscore FBs success at makingtheir platform stickier with longer engagement lengths.

Consumer Satisfaction TrendsWhen asked to rate FB on a scale of 1 (hate) and 10 (love), 90% of respondentsrated it above 5 and most rated the FB experience as like a lot or nearly love (ie,2/3 of answers were a 6 or 7 rating). Interesting, about half of respondents said theirrating had fallen over the past year.

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ANALYST CERTIFICATION

I, Laura Martin, CFA, hereby certify that the views expressed in this research report accurately reflect my personal viewsabout 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, Kerry Rice, 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 orindirect compensation in exchange for expressing the specific recommendation(s) in this report.

31

32

33

34

35

36

37

38

39

40

41

Apr 12 May 12

Price, Rating, and Price Target History: Facebook Inc. (FB/NYSE) as of 5-22-12

Source: Factset (Prices) / Needham (ratings and target price)

5/22/12B : $40.0


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350

400

450

500

550

600

650

700

750

Mar 09 Jun 09 Sep 09 Dec 09 Mar 10 Jun 10 Sep 10 Dec 10 Mar 11 Jun 11 Sep 11 Dec 11 Mar 12 Jun 12

Price, Rating, and Price Target History: Google, Inc. (GOOG/NASDAQ) as of 5-22-12


7/17/09B : $500.0

10/16/09B : $600.0

11/30/09B : $615.0

1/22/10B : $700.0

7/1/11RS

7/15/11B : $725.0

10/14/11B : $750.0


10

15

20

25

30

35

Sep 09 Dec 09 Mar 10 Jun 10 Sep 10 Dec 10 Mar 11 Jun 11 Sep 11 Dec 11 Mar 12 Jun 12

Price, Rating, and Price Target History: AOL Inc. (AOL/NYSE) as of 5-22-12


12/8/10

B : $35.0

9/6/11

B : $20.0

4/10/12

B : $31.0

Disclosures applicable to this security: B.

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100

200

300

400

500

600

700


Price, Rating, and Price Target History: Apple Inc. (AAPL/NASDAQ) as of 5-22-12


9/15/09SB :

$235.0

11/17/09B : $235.0

2/11/10B : $280.0

8/9/10B : $375.0

2/7/11B : $450.0

8/4/11B : $540.0

2/8/12B : $620.0

Disclosures applicable to this security: A, B, G.

6

7

8

9

10

11

12

13

14

15

Nov 11 Dec 11 Jan 12 Feb 12 Mar 12 Apr 12 May 12

Price, Rating, and Price Target History: Zynga Inc. (ZNGA/NASDAQ) as of 5-22-12

Source: Factset (Prices) / Needham (ratings)

3/23/12

UP

4/19/12

H


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11

12

13

14

15

16

17

18

19

20

21


Price, Rating, and Price Target History: Yahoo! Inc. (YHOO/NASDAQ) as of 5-22-12


7/12/10B : $20.0

6/29/11B : $19.0


8

10

12

14

16

18

20

22

May 11 Jun 11 Jul 11 Aug 11 Sep 11 Oct 11 Nov 11 Dec 11 Jan 12 Feb 12 Mar 12 Apr 12 May 12

Price, Rating, and Price Target History: Pandora Media Inc. (P/NYSE) as of 5-22-12


1/9/12

B : $13.0

Disclosures applicable to this security: B.

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% of companies under coverage

with this rating

% for which investment banking services

have been provided for in the past 12 months

Strong Buy 6 0

Buy 59 14

Hold 33 5

Under Perform 1 0

Rating Suspended

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