Facebook Initiating Report

Company ReportMay 7, 2012

Facebook, Inc.Facebook - Initiating Coverage with a Buy Rating and $46 PT

BuyFBPrice NA

Price Target $46.00

Our CallAhead of Facebook’s (FB) highly anticipated IPO on Friday, May 18 (expectedprice range of $28 - $35), we are initiating coverage with a Buy rating. Our 1-year/2-year target prices are $46 (30x 2013 EBITDA estimate of $3.8B) and $59(30x 2014 EBITDA estimate of $5.0B), respectively.

The Next Google? FB’s highly coveted Reach, Engagement, Relevance andSocial Context. Just like Google did less than a decade ago, we believe Facebook isdisrupting the worldwide advertising market (~$600B), particularly its $68B sub-segment of online advertising (a market that is expected to reach $120B by 2015or CAGR of 13%). Driven by 1) Facebook’s leadership position in social media;2) its unparalleled reach (900 monthly active users); 3) highly engaged audience(526M daily active users); 4) growing ARPU (average revenue per user); 5) mobilemonetization potential; and 6) the wild card—China, we think FB can more thantriple its revenue and EBITDA over the next 4 to 5 years. Our estimates wouldbe achievable if FB increases its share of online advertising by only 300bps from5% in 2011 to close to 8% by 2016. In addition, we have very little contributionfrom mobile and China modeled currently and as such our estimates could proveconservative. Together, Mobile and China could add $1.5B in incremental revenueand $600 million in incremental EBITDA by 2015. Additionally, the market forvirtual/digital goods is expected to reach $14B by 2016, up from $9B in 2011(CAGR of 9%), according to NPD In-Stat. For advertisers, FB differentiates itselfwith its ability to provide a highly targeted audience (with 90% to 95% accuracy)and in a social context, which are highly desirable features.

Mobile advertising and China opportunities. The mobile advertising market iscurrently relatively small (was $1.5B in 2010) but is expected to grow rapidlyand reach $18B by 2015 or a CAGR of 64%, according to IDC. With 488Musers accessing FB through mobile devices, the company already has the reach onmobile. Facebook was the most downloaded app on Android and iPhone in themonth of January 2012. We see mobile monetization as a significant long-termgrowth opportunity for FB, but with some initial challenges. In addition, if FB isable to enter China, which has 23% of the world’s internet users, its growth couldaccelerate. The potential China opportunity is not reflected in our estimates butwe think could add $400 to $600M in incremental revenue and $125M to $300Min incremental EBITDA. That said, clearly this opportunity is neither a given norwithout its own unique set of challenges/hurdles.

Interactive Entertainment /Internet

Arvind Bhatia, CFA(214) [email protected]

Brett Strauser(214) [email protected]

Company DataRating BuyPrice NAPrice Target $46.0052-Week Range NA - NAMarket Capitalization (M) NAAvg. Daily Vol. (000) NADividend $0.00

Revenue ($M) 2011A 2012E 2013EFY 3,711.0 5,007.6 6,297.0

EBITDA (M) 2011A 2012E 2013EFY 2,297.0 2,871.4 3,772.8

FYE Dec 2011A 2012E 2013E

(Curr) (Curr) (Curr)EPS ($)Q1 (Mar) - 0.13A 0.14Q2 (Jun) - 0.13 0.17Q3 (Sept) - 0.13 0.17Q4 (Dec) - 0.17 0.21FY EPS - 0.56 0.69

Price Performance

Chart Data Not Available

Source: FactSet

Important Disclosures regarding Price Target Risks, Valuation Methodology, Regulation Analyst Certification,Investment Banking, Ratings Definitions, and potential conflicts of interest begin on Page I of the Appendix Section.

800 Shades Creek ParkwaySuite 700Birmingham, AL 35209205-949-3500Sterne, Agee & Leach Inc. is Member NYSE, FINRA, SIPC

TABLE OF CONTENTS

FINANCIAL MODELING FRAMEWORK………………………………………………..3

VALUATION ANALYSIS……………………….…………………………………………..5

KEY INVESTMENT POSITIVES………………………………..…………………………6

KEY INVESTMENT RISKS……………………………………………………………….16

COMPANY OVERVIEW…………………………………………………………………..19

FINANCIAL STATEMENTS………………………………………………………………23

TRENDS……………………………………………………………………………………..27

May 7, 2012

IPO Details

Facebook is expected to sell 337.4M shares in its IPO at a price range of $28 to $35 per share.

This includes 180M new shares and 157M existing insider shares. The company expects to

receive $5.6B at the midpoint of the potential price range. If the IPO is priced at the upper end

of the price range and the over- allotment option is exercised (an additional 6M new shares,

44.6M existing shares), the gross proceeds to the company could be $6.5 billion. Founder and

CEO Mark Zuckerberg will exercise outstanding stock options of 60M shares, and of this, he

will sell 30.2M shares to satisfy taxes related to the above option exercise. We estimate the

total number of shares outstanding (fully diluted) post the IPO will be 2.74 billion. In other

words, the company’s post-money market capitalization based on the IPO price range is $77B

to $96B.

Risks

Key risks to FB include 1) slower-than-expected growth; 2) competitive threats from

companies like Google; 3) regulatory risks; 4) risks associated with entering new international

markets, etc.; 5) regulatory/legislative changes that may limit Facebook’s ability to provide

user information to advertisers, etc. In addition, we have not had a chance to interact with

management prior to this report, and as such, the report relies heavily on publicly available

data and our industry contacts. Also, IPOs are inherently risky given the stock has no history

of trading publicly.

Our Financial Modeling Framework

We believe over the next five years, FB can grow its revenue at a CAGR of at least 25% and

adjusted EBITDA (ex stock-based compensation) 25% to 30%. Additionally, we note our

model assumes only modest leverage on fixed costs. For the most part, our total operating

costs (ex stock-based compensation) are assumed to grow in line to slightly higher than

revenue growth. This is because we believe FB will continue to invest heavily in the coming

years to continually improve user experience. Said differently, we believe the underlying

earnings power and growth rates are somewhat muted by the near to intermediate

investments. Our 5-year (2011-2016) revenue CAGR of 25% is based on traffic (MAUs)

increasing 12% on average and the rest from higher ARPU over time.

Our financial modeling framework assumes:

A) Increasing internet user penetration worldwide.

B) Increasing Facebook penetration of internet users.

C) Increasing engagement of Facebook users.

D) Higher ARPU

E) Modest leverage on fixed costs.

The tables below show that at the end of 2011, Facebook had a worldwide penetration rate of

roughly 48% of internet users, including 66% in the U.S., 46% in Europe, 42% in Asia and

47% in the rest of the world. First, we expect the worldwide internet user base to grow at a

CAGR of 8% in the next 5 years. Second, we expect Facebook to achieve greater penetration

in each of its markets. We believe Facebook could achieve a worldwide penetration rate of

57% by 2016 (up 900 bps versus 2011), including 76% in the U.S., 56% in Europe, 52% in

Asia and 57% in the rest of the world.

May 7, 2012

Combining the increased internet user base and the higher market penetration rates discussed

above implies Facebook can grow its MAUs to 1.5 billion by 2016, up from 845 million at the

end of 2011 or a CAGR of 12%. This is slower than the historical MAU growth simply due to

the law of large numbers. Facebook’s MAU growth in the past three years has averaged 80%,

including 148% in 2009, 69% in 2010 and 39% in 2011. Revenue growth over the same

period has averaged 139%. This has been result of several factors including the ability to

generate more ads, charge higher prices per ad and the benefit of payment and fee revenue

from developers since the implementation of the 30% tax on developers since 2010, etc.

Internet FB Penetration

Total Internet Facebook user Of Internet

Population Users users Penetration users-- 2011

MM MM MM % %

US & Canada 347 273 179 79% 66%

Europe 816 501 229 61% 46%

Asia (Ex China) 2542 504 212 20% 42%

Rest of World 1887 477 225 25% 47%

Total 5593 1754 845 31% 48%

China 1337 513 0 38% 0%

Source: 1. http://www.internetworldstats.com/stats.htm

2. Facebook

3. Sterne Agee Estimates

Facebook Penetration Rates: Dec 31, 2011

Internet FB Penetration

Total Internet Facebook user Of Internet

Population Users users Penetration users-- 2016

MM MM MM % %

US & Canada 365 305 231 84% 76%

Europe 858 591 329 69% 56%

Asia (Ex China) 2672 930 484 35% 52%

Rest of World 1984 799 457 40% 57%

Total 5878 2624 1501 45% 57%

5 Yr CAGR 1% 8% 12%

China 1371 595 0 43%

Source: 1. http://www.internetworldstats.com/stats.htm

2. Facebook

3. Sterne Agee Estimates

Facebook Penetration Rate Estimates: Dec 31, 2016

May 7, 2012

Source: Company Reports and Sterne Agee Estimates

Valuation – 1-Year Target Price of $46; 2-Year Target Price of $59

We believe over the next 12 months, FB shares can trade at 30x our 2013 adjusted EBITDA

estimate of $3.8B, which implies Enterprise Value of $114B and market cap of $124B

(including $10B in estimated pro-forma cash post IPO) and value per share of $46 (using pro-

forma shares outstanding of 2.7B). Extending this same exercise another year (30x our 2014

EBITDA estimate of $5B), yields a 2-year target price of $59. Our forward EBITDA multiple

is clearly a premium to the company’s peer group. However, we believe investors will be

willing to pay this premium as FB is still in the early stages of disrupting a $600B market.

1 6 12 58

145

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1,175

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1,415 1,501

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2004 2005 2006 2007 2008 2009 2010 2011 2012E 2013E 2014E 2015E 2016E

Facebook MAUs (millions): 2004 - 2016)

May 7, 2012

KEY INVESTMENT POSITIVES

Large Addressable Market for Worldwide Advertising

We believe Facebook is in the early innings of revolutionizing the $600 billion worldwide

advertising market, particularly the sub-segment of online advertising. Online advertising

spending is expected to reach $120B by 2015, up from $68B in 2010 or a CAGR of 12%.

This growth rate is 3x the expected growth rate of traditional advertising during the same

period due to the ongoing secular shift from offline to online advertising. Furthermore, social

media is quickly gaining share within online advertising as marketers see value in reaching

their audiences in a more relevant and social context. As the leading social network

worldwide, Facebook is well positioned to address this large and rapidly growing market.

Facebook’s highly coveted Reach, Relevance, Engagement and Social Context

With more than 900 million monthly active users (MAUs) as of March 31, 2012, FB is the

world’s largest online social network and the world’s most trafficked website, according to

Comscore (SCOR - $19.10 - Not Rated) Media Metrix, followed by Google (GOOG -

$596.97 – Not Rated) and Microsoft (MSFT - $30.98 - Not Rated). MAUs were up a strong

33% Y/Y and 7% sequentially at the end of 1Q’12. FB’s stated goal is to reach almost every

one of the nearly 2 billion people on the Internet. While FB’s reach is clearly enormous, its

engagement metrics are even more impressive. During 1Q’12, FB averaged 526 million daily

active users (DAU), up 41% Y/Y and 9% sequentially. Average DAUs as a % of average

MAUs, which is another measure of engagement, were up 250bps Y/Y and 150 bps

sequentially, reaching 60.3% in 1Q. Additionally, nearly 76% of these daily users were active

on FB for at least six of the last seven days during March 2012. Yet another way to measure

engagement, in January, 2012, FB users spent on average 20 minutes daily on the website, up

14% Y/Y. The total minutes per day on FB increased 57% Y/Y to 10.5 billion minutes in

January 2012. There are 3.2B likes and comments posted on FB daily, which also shows how

involved and engaged the audience is. In terms of relevance, FB is able to provide target

audience to advertisers with 90% to 95% accuracy given that users’ identity on FB is mostly

authentic (5% to 6% of accounts are estimated to be fake/duplicates). This is significantly

higher than the industry average of 30%. We believe this is an important reason FB will be

able to increase its ARPU, going forward. In terms of social context, FB has been able to

show a 50% increase in ad recall for targeted ads, based on 79 different advertising campaigns

conducted on Facebook.

5 Yr CAGR

2010 2015E 2010-2015E

Online Advertising ($BB) 68 120 12%

Offline Advertising ($BB) 520 630 4%

Total ($BB) 588 750 5%

Online % Share of Total 12% 16%

Source: Facebook

Worldwide Advertising Market

May 7, 2012

Facebook's Reach

Source: Company Reports and Sterne Agee


196

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432

482

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681

738

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Worldwide MAUs (millions)

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Worldwide MAU Mix

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Europe

US & Canada

May 7, 2012


User Engagement


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US & Canada

Europe

Asia

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93108

145

185

235257

294

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416

457483

526

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Worldwide DAUs (millions)

May 7, 2012



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Worldwide DAU Growth

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May 7, 2012



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

Worldwide User Engagement (DAU as % of MAU)

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User Engagement by Region (DAU as % of MAU)

US & Canada

Europe

Asia

Rest of World

May 7, 2012

Mobile Advertising Opportunity

According to IDC, the global market for mobile advertising will reach nearly $18B by 2015,

up from $1.5B in 2010 or a CAGR of 64%. With 488 million MAUs using Facebook mobile

products in the month of March 2012, FB clearly has the reach on mobile platforms as well.

Furthermore, the Facebook mobile app was the most downloaded app on Android and iPhone

in the month of January 2012, according to Neilsen. Facebook has only just begun showing

sponsored stories in Facebook users’ mobile News Feeds and mobile advertising could be a

significant opportunity for Facebook in the future, especially as smartphone use continues to

grow rapidly. We see mobile monetization as a significant long-term growth opportunity for

FB, but with some initial challenges. For example, it is not yet clear if most of the mobile

advertising growth will be incremental or will cannibalize online advertising. Still, if the

mobile advertising market develops, as anticipated, and FB garners a 5% share by 2015, it

could generate incremental revenue of ~$1B and incremental EBITDA of $300-$500M.


2010 2015 (Est.) CAGR

Market Size ($BB) $1.5 $18.0 64%

FB Market Share 0% 5%

FB Mobile Advertising Revenue $0.0 $0.9

Source: Company Reports, IDC, and Sterne Agee

Facebook's Mobile Advertising Opportunity

3550

75101

129155

196

245

288

325

376

432

488

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May 7, 2012


China

Facebook is currently not in China, which has 23% of the world’s internet users. The potential

China opportunity is not reflected in our current estimates but we think could add $400-

$600M in incremental revenue and $125M to $300M in incremental EBITDA. This is based

on the assumption that FB could penetrate 42% of China’s estimated 500M internet users, a

penetration rate similar to that in other parts of Asia. Furthermore, it assumes relatively low

annual ARPU of $2.00 to $3.00, again similar to ARPU rates in other parts of Asia and much

lower than the West, where annual ARPUs are in the $12 (US/Canada) to $6 (Europe) range.

Clearly, this opportunity is neither a given nor without its own unique set of

challenges/hurdles. However, the potential opportunity is large and lucrative.

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Increasing Mobile MAU penetration

Mobile MAUs

FB User Base Potential in China

2011 Total Potential Potential

Total Internet Internet FB FB

Population Users Penetration Penetration Users

(MM) (MM) (%) (%) (MM)

1337 513 38% 42% 216

FB Revenue/EBITDA Potential in China

ARPU Revenue EBITDA Margin EBITDA

($) ($MM) (%) ($MM)

Low $2.00 $432 30% $130

High $3.00 $648 50% $324

Sources: http://www.internetworldstats.com/stats.htm

Company Reports, Sterne Agee Estimates

Facebook's China Potential

May 7, 2012

Virtual Goods Market provides diversification

In the most recent quarter, while 82% of FB’s revenue was generated through advertising, the

other 18% was from payments from its developer partners such as Zynga (ZNGA - $8.33 –

Underperform), which pay FB a 30% cut of their revenue. This provides diversification to the

FB business model. The market for virtual/digital goods (think virtual seeds in Farmville) is

expected to reach $14B by 2016, up from $9B in 2011 (CAGR of 9%). Currently, most of the

revenue in this segment is generated from payments from social game developers, and in

particular from Zynga. FB takes a 30% cut of revenue generated by Zynga and other

developers on FB. In 1Q’12, Zynga represented 11% of FB’s revenue, down from 13% in the

year-ago period. The agreement between Zynga and Facebook expires in May 2015. We

expect FB’s revenue from Payments to grow at a CAGR of 20% over the next five years.



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Revenue by Segment (millions)

Advertising

Payments and other fees

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Revenue Mix by Segment

Payments and other fees

Advertising

May 7, 2012



Geographic Diversification

In the most recent quarter, FB generated 50% of its total revenue from the U.S./Canada.

Europe generated 31% of total revenue while Asia/Rest of the World accounted for 11%/8%,

respectively, of total revenue. In terms of advertising revenue alone, FB generated less than

half (48%) of its advertising revenue in the U.S./Canada. Another 31% of advertising revenue

was generated in Europe, followed by Asia at 11% and Rest of the World at 9%. Over the

next five years, we expect revenues to continue to diversify further. By the end of 2016, we

think U.S. will likely represent only 35% of total revenue, Europe 28%, Asia 21% and the

Rest of the World 16%. We note that ARPU (average revenue per user) is much higher in the

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Asia

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US & Canada

May 7, 2012

West. For the most recent 12 months, ARPU was nearly $12 in the US/Canada, nearly $6 in

Europe, $2 in Asia and $1.50 in the Rest of the World. We expect traffic growth to be faster

outside the U.S. and we expect ARPU to be up in each territory over time. We note ARPU

trends in Europe have been under some pressure lately due to the ongoing recession.

Third-party integration

Facebook continues to make major investments to enable developers to create applications

and websites that integrate with the Facebook Platform. This integration allows third-party

developers to reach more users by tapping into the viral aspects of such an integration.

Additionally, an increasing number of businesses manage a Facebook fan page, which creates

a free, direct communication channel with customers. Facebook’s impressive web penetration

across multiple sectors of the global economy has allowed it to further entrench itself and has

given strength to the platform’s network effect.

May 7, 2012

KEY INVESTMENT RISKS

Potential Hurdles for Facebook in China

As the experience of other U.S. internet companies such as eBay (EBAY - $39.44 - Not

Rated), Amazon (AMZN - $223.99 - Not Rated) and Google has shown, entering China can

be treacherous. Challenges range from compliance with regulatory authorities to failing to

address the cultural nuances of the Chinese market. eBay entered China in 2003 through the

acquisition of EachNet, which was a leading B2C company in China at the time.

Subsequently, EachNet lost most of its market share even as other local players were able to

grow significantly. Amazon entered China through the acquisition of Joyo and has had some

success but arguably not as much as some had hoped. Google, of course, ran into issues with

Chinese regulatory authorities due to its unwillingness to censor searches. In addition to the

inherent challenges of entering a new market, Facebook will also have to contend with the

multiple licensing authorities such as Ministry of Culture, General Administration of Press

and Publication (GAPP), The Ministry of Information Industry etc.

Hyper Growth is over

Facebook is clearly going to face the law of large numbers when it comes to traffic. Facebook

already has 901M MAUs or nearly 1 of every 2 internet users. While we expect Facebook to

benefit from an increasing base of internet users and to be able to achieve higher penetration

rates of internet users, the hyper growth of past years is unlikely to be matched simply due to

the law of large numbers. For example, we have modeled MAUs to increase 26% in 2012

versus 48% in 2011 and 88% in 2010. However, we believe Facebook will be able to grow its

revenue above its traffic growth rate, as a result of higher ARPU, driven by more ads and

higher prices per ad, etc.

Recent sequential decline in revenue

FB reported Y/Y revenue growth of 45% in 1Q’12 (March), which was a slowdown from Y/Y

growth of 55% in 4Q’11 and 104% in 3Q’11. Sequentially, 1Q’12 revenue declined 6%,

including advertising revenue, which declined 8% sequentially. This has understandably

raised concerns. However, we attribute this to a seasonal slowdown, particularly after a very

strong December quarter when revenue increased 19% sequentially. We note that in 1Q’11

FB also saw a seasonal dip in advertising revenue, which declined 3% sequentially followed

by strong momentum in the June quarter when advertising revenue was up 22% sequentially.

May 7, 2012

Recent decline in Payments & Other Fees revenue

For the first time since Facebook implemented the Facebook credits system, revenue from its

Payments and Other Fees segment declined sequentially. Since this revenue stream comes

from the fee Facebook retains on Facebook Credit transactions, and since the majority of

these transactions to date have been for purchasing virtual goods in social games by

publishers such as Zynga, a sequential decline in revenue from this segment could signal a

slowdown in social gaming. However, we think any declines in social gaming-related

revenues will be offset as more developers begin to accept Facebook credits as a payment

mechanism for their products and services.

Increasing competition

Facebook competes with other social networking and traditional websites for a share of users’

time, and ultimately, a share of overall internet marketing expenditures. Additionally, FB

faces competition regarding hiring and retaining talented employees. Any website with a large

user base, high engagement, and high average time spent on the site would be considered a

competitor to Facebook. Some of Facebook’s key U.S. competitors are Google+, Linkedin

(LNKD - $117.30 – Not Rated) Twitter, Pinterest, Tumblr, and to a certain extent, Microsoft

(although MSFT is also an investor in FB). Overseas, FB’s main competitors are Mixi in

Japan, Orkut in India and Brazil, Cyworld in Korea and vKontakte in Russia. In China, once

FB enters the market, it will face competition from established players such as RenRen

(RENN - $6.70 - Not Rated), Sina and Tencent. Below, we show a comparison of FB with

GOOG.


Advertising $0.86 $0.93 $0.87 $1.13 $0.99 $1.09 $1.04 $1.15 $1.00

Payments $0.01 $0.02 $0.03 $0.13 $0.15 $0.17 $0.20 $0.23 $0.21

Total $0.87 $0.94 $0.91 $1.26 $1.14 $1.26 $1.24 $1.37 $1.21

Y/Y % Chg

Advertising 16% 18% 19% 1% 1%

Payments 1055% 995% 512% 72% 47%

Total 31% 34% 37% 9% 7%

Sequential % Chg

Advertising 8% -6% 30% -12% 10% -5% 10% -13%

Payments 21% 115% 304% 10% 15% 20% 13% -6%

Total 8% -4% 39% -10% 11% -1% 11% -12%

Seasonality & Mix Seasonality & Mix

Source: Company reports and Sterne Agee Estimates

Seasonality in Monetization Trends

May 7, 2012


Note: FB Revenue for IPO year through year 5 is based on Sterne Agee Estimates. Google is based on actuals


Note: FB EBITDA for IPO year through year 5 is based on Sterne Agee Estimates. Google is based on actuals

Competition for Users’ Time

The likelihood of a direct FB competitor becoming successful is low. However, much of

Facebook’s value comes from the amount of time users spend on the platform. Pinterest and

Instagram have shown us that the barriers to entry are low for a developer to create a

disruptive platform that takes market share in terms of a user’s time. Also, Vertical-specific

social networks may compete for user hours and may have higher marketing ROI/easier to

measure ROI, which means more marketing $ spent on competing niche networks and less on

FB.

$0

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Year Before

IPO

IPO Year 2 Year 3 Year 4 Year 5

FB vs. GOOG Revenue GrowthGOOG IPO year: 2004

FB IPO year: 2012

Google

Facebook

$0$1,000$2,000$3,000$4,000$5,000$6,000$7,000$8,000$9,000

Year Before

IPO

IPO Year 2 Year 3 Year 4 Year 5

FB vs. GOOG EBITDA GrowthGOOG IPO year: 2004

FB IPO year: 2012

Google

Facebook

May 7, 2012

COMPANY OVERVIEW

Background

Founded in 2004, Facebook is a social network that allows its users to connect with their

friends, family, acquaintances, favorite brands, organizations, and public figures, and allows

them to share and express their lives in various ways. Other beneficiaries of Facebook’s

services include developers and advertisers.

Developers can integrate with the Facebook platform through use of developments tools and

APIs to build personalized, social, and engaging products and tap into Facebook’s more than

900M users. Upon the successful integration of a third-party application or website with

Facebook, developers can leverage Facebook’s social distribution channels to drive traffic to

their own products. Facebook created a consistent payment mechanism for developers, giving

users a single payment account to be used for the purchase of virtual and physical goods

offered by third parties on the Facebook Platform. We believe the ease of use and security

offered by Facebook’s payment infrastructure increases a user’s propensity to purchase from a

third party, thereby increasing the total number of transactions on the Facebook platform. In

exchange for offering this payment mechanism, Facebook retains a negotiated fee from

developers (Roughly 30%, or similar to Apple’s iTunes/AppStore model [AAPL - $565.25 –

Buy, WU]).

Advertisers can engage with subsets of users on Facebook based on information users have

provided such as their age, location, gender, interests, and more. Advertisers can increase the

relevancy of their advertisements by leveraging the information users have provided to

Facebook. Facebook’s robust advertising engine allows advertisers to be highly specific

regarding their target audience. Advertisers can also incorporate social context into their

advertisements such as an endorsement from a user’s friend. Users may be more receptive to a

particular advertisement if they see that a friend is a fan of the brand or product being offered.

Advertisers also benefit from managing a Facebook Page, which provides a free, direct

communication channel with customers or potential customers. When an advertiser creates

content on its Facebook Page, users who have “liked” the page will receive the content on

their news feed.

Facebook is free for its users and generates revenue through advertising and through retaining

a portion of revenue generated by third-party developers on the platform. FB derived 82% of

its revenue from advertising in the most recent quarter, down from 87% in the year-ago

period. The other 18% was derived from payments from its partners such as Zynga and other.

FB received a 30% cut of its partner’s gross revenue generated on the FB platform. Zynga

represented 11% of the overall revenue for FB in the most recent quarter, down from 13% in

the year-ago period.

Key Products for Users

Timeline. Timeline is the name of the new and improved Facebook Profile page. The types of

information displayed on the timeline include a user’s interests, photos, education, work

history, relationship status, and contact information. A user can control the information share,

and with whom they want to share it.

News Feed. This is the continuously updated aggregation of stories about friends, business or

other pages a user is connected to on Facebook. It organizes updates chronologically. Types

of updates shown on a news feed include posts, photos, event updates, etc.

Photos and Videos. Facebook and its subsidiary, Instagram, are the most popular photo

uploading services on the web. Users can upload an unlimited number of high resolution

photos, create photo albums, and share them with the audience of their choosing. Users can

also upload and share videos. Users have control over privacy settings for uploaded content,

May 7, 2012

making them visible to everyone or only select people. Users can tag friends in their photos

and videos, which then appends that photo or video to the tagged person’s profile.

Messages. Facebook’s messaging products include email, chat, and text messaging.

Groups. Facebook groups are shared pages for groups of users to discuss common interests,

post photos, or engage in other shared activities. Groups can control privacy settings to

specify whether the group is public or private.

Lists. Lists allow users to sub-divide and categorize their friend groups. This allows users to

reach or exclude certain people when they share information on Facebook.

Events. Events allow users to organize gatherings, manage invitations, and send event

notifications and reminders to their friends.

Places. This allows users to share their current location and see where their friends are. Users

can let their friends know where they are by “checking in” to places and tagging friends who

are with them. Users can also view comments their friends have made about places they visit.

Subscribe. Similar to Twitter, Subscribe allows users to follow the updates from people not

included in their list of friends, including celebrities and other public figures.

Ticker. Ticker is a live stream of the real-time activities of a user’s friends and the pages to

which a user is connected.

Notifications. This is Facebook’s alert system, informing a user of a new friend request,

message, or that they have been tagged in a photo, etc. Notifications are a key engagement-

driver for Facebook users.

Facebook Pages. A Facebook page is as public profile that allows anyone including artists,

public figures, businesses, brands, organizations, and charities to create a presence on

Facebook and engage with the Facebook community.

Key Products for Developers

Open Graph. The open graph gives developers a way to allow users of their app or website

to share their activities with their Facebook friends. An example of this integration is the way

Spotify gives users the option of letting their Facebook friends see what music they’re

listening to.

Social Plugins. Social plugins are another way for developers to integrate their sites/apps

with Facebook to benefit from the viral effects such an integration can provide. The term

plugin refers to the ease of development integration (i.e. plugins require developers to

incorporate only a single line of HTML code).

Like button. Gives users a 1-click method for sharing content from a third-party website to

Facebook for their friends to see.

Recommendations. This allows a website to display to Facebook users what their friends

have recommended.

Single sign-on registration and log-in. This allows users to long onto third-party websites

using their FB login credentials, eliminating the need to remember multiple usernames and

passwords.

Comments. This allows users to post their views, questions, and critiques on any piece of

content on a website.

May 7, 2012

Payments. Facebook provides developers with an efficient and secure online payment

infrastructure. In exchange for offering this service, Facebook retains a 30% fee on all

transactions. To date, the majority of Facebook’s payments revenue has been generated by the

purchase of virtual goods in social games.

Apps on Facebook. The Facebook Platform has enabled social apps to facilitate the sharing

and discovery of games, music, news, television programming, and everyday interests such as

cooking, fitness, and travel.

Desktop Apps. Developers can build applications that run directly on the user’s PC.

Developers can add a social element by integrating with Facebook.

Mobile Apps. Developers can integrate their mobile apps with Facebook’s social and

personalization capabilities.

Platform-Integrated websites. Websites can integrate with Facebook using simple social

plug-ins such as the Like button, recommendations, and more. Facebook integration has

proven to be an effective strategy for new websites to gain popularity.

Key Products for Advertisers

Facebook Ads. Facebook has a simple, self-service advertising engine. Facebook gives

marketers the ability to concentrate their ads to a particular segment of the Facebook userbase,

or they can launch more broadly targeted advertisements. Facebook ads have a standard

format on Facebook, providing consistency for users and advertisers.

Sponsored Stories. Sponsored stories allow marketers to more broadly promote stories they

publish to their Facebook page , and also to amplify the reach of stories created by users’

interactions with the page.

Facebook Ad System. Advertisers can create campaigns to target Facebook users based on

their age, location, gender, relationship status, educational history, workplace, and interests.

Ad Analytics and FB Insights. FB gives advertisers the ability to track and optimize their

campaign performance. These analytics allow advertisers to see which ads were displayed and

clicked on. FB Insights allows advertisers with FB pages to view information about the

performance of their page and related posts, such as which posts generated the highest user

engagement via clicks, likes, or shares.

Management

Mark Zuckerberg (27) CEO, Founder, Controlling Stockholder Mark Zuckerberg is the company’s founder and has served as its CEO and as a member of the

board of directors since July 2004. Mr. Zuckerberg has served as Chairman of the board of

directors since January 2012 and is the company’s largest and controlling stockholder. Mr.

Zuckerberg attended Harvard University where he studied computer science.

Sheryl K. Sandberg (42) Chief Operating Officer Sheryl Sandberg has served as the company’s Chief Operating Officer since March 2008.

From November 2001 to March 2008, Ms. Sandberg served in various positions at Google,

Inc., most recently as Vice President, Global Online Sales & Operations. Ms. Sandberg also is

a former Chief of Staff of the U.S. Treasury Department and previously served as a consultant

with McKinsey & Company, a management consulting company, and as an economist with

The World Bank. In addition, Ms. Sandberg has been a member of the board of directors of

the Walt Disney Company since December 2009. Ms. Sandberg holds an A.B. in economics

from Harvard University and an M.B.A. from Harvard Business School.

May 7, 2012

David A. Ebersman (42) CFO David Ebersman has served as the company’s Chief Financial Officer since September 2009.

Prior to joining Facebook, Mr. Ebersman served in various positions at Genentech, Inc., a

biotechnology company, including as its Chief Financial Officer from March 2005 and as an

Executive Vice President from January 2006 until April 2009, following Genentech’s

acquisition by F. Hoffmann-La Roche Ltd. in March 2009. Prior to joining Genentech, Mr.

Ebersman was a research analyst at Oppenheimer & Company, Inc., an investment company.

In addition, Mr. Ebersman has been a member of the board of directors of Ironwood

Pharmaceuticals, Inc. since July 2009. Mr. Ebersman holds an A.B. in economics and

international relations from Brown University.

David B. Fischer (39) VP of Marketing and Business Partnerships David Fischer joined the company in April 2010 and serves as its Vice President, Marketing

and Business Partnerships. From July 2002 to March 2010, Mr. Fischer served in various

positions at Google, including most recently as its Vice President, Global Online Sales &

Operations. Prior to joining Google, Mr. Fischer served as Deputy Chief of Staff of the U.S.

Treasury Department and was an associate editor at the U.S. News World Report, L.P., a

news magazine company. Mr. Fischer holds a B.A. in government from Cornell University

and an M.B.A. from the Stanford University Graduate School of Business.

Mike Schroepfer (37) VP of Engineering Mike Schroepfer has served as the company’s Vice President of Engineering since September

2008. From December 2005 to August 2008, Mr. Schroepfer served as Vice President of

Engineering at Mozilla Corporation, an Internet company. Prior to Mozilla, Mr. Schroepfer

served in various positions at Sun Microsystems, Inc., an information technology company,

including as Chief Technology Officer of its data center automation division. He also co-

founded CenterRun, Inc., a developer of application provisioning software, which was

acquired by Sun Microsystems. In addition, Mr. Schroepfer has been a member of the board

of directors of Ancestry.com Inc. since January 2011. Mr. Schroepfer holds a B.S. and an

M.S. in computer science from Stanford University.

Theodore W. Ullyot (44) VP, General Counsel, and Secretary Theodore Ullyot has served as the company’s Vice President, General Counsel, and Secretary

since October 2008. From May 2008 to October 2008, Mr. Ullyot was a partner at Kirkland &

Ellis LLP, a law firm. From October 2005 to April 2008, Mr. Ullyot served as Executive Vice

President and General Counsel of ESL Investments, Inc., a private investment firm. Prior to

joining ESL Investments, Mr. Ullyot served in the federal executive branch under President

George W. Bush, including as Chief of Staff at the U.S. Justice Department and as a Deputy

Assistant to the President. Earlier in his career, Mr. Ullyot was an associate general counsel at

AOL Time Warner, Inc. and served as a law clerk for U.S. Supreme Court Justice Antonin

Scalia and for Judge Michael Luttig of the U.S. Court of Appeals for the Fourth Circuit. Mr.

Ullyot holds an A.B. in History from Harvard University and a J.D. from the University of

Chicago.

May 7, 2012

INCOME STATEMENT ($ In Millions) - FY End: December

Facebook Annual Earnings Model: Sterne AgeeArvind Bhatia, CFA (214) 702 - 4001

2010A 2011A 2012E 2013E 2014E 2015E 2016E

Advertising Revenue 1,869$ 3,154$ 4,145$ 5,238$ 6,562$ 8,173$ 10,070$

Payments and other fees revenues 106$ 557$ 863$ 1,059$ 1,189$ 1,295$ 1,372$

Revenue ($MM) 1,975$ 3,711$ 5,008$ 6,297$ 7,751$ 9,469$ 11,442$

Y/Y % Chg-- Advertising Revenue 69% 31% 26% 25% 25% 23%

Y/Y % Chg-- Payments Revenue 425% 55% 23% 12% 9% 6%

Y/Y % Chg-- Revenue 88% 35% 26% 23% 22% 21%

Sequential Change -- Advertising Revenue

Sequential Change -- Payments Revenue

Sequential Change -- Revenue

Costs and Expenses

Cost of revenue 493 851 1,247 1,522 1,762 2,102 2,502

Gross Profits 1,482 2,860 3,761 4,775 5,989 7,367 8,940

Gross Margin 75% 77.1% 75.1% 76% 77% 78% 78%

YOY Chg (bps) 374 203 (197) 73 144 54 33

Marketing and sales 184 384 644 812 972 1,102 1,214

% of Revenue 9% 10% 13% 13% 13% 12% 11%

Research and development 134 274 457 632 742 822 902

% of Revenue 7% 7% 9% 10% 10% 9% 8%

General and administrative 113 228 378 498 578 658 738

Total Operating Expenses 431 886 1,479 1,942 2,292 2,582 2,854

Income from operations (EBIT) 1,051 1,974 2,281 2,833 3,696 4,785 6,086

Dep & Amort costs included in costs above 139 323 590 940 1,260 1,480 1,640

Adjusted EBITDA (ex Stock based comp) 1,190$ 2,297$ 2,871$ 3,773$ 4,956$ 6,265$ 7,726$

% Y/Y Growth 93% 25% 31% 31% 26% 23%

% Sequential Growth

Adjusted EBITDA Margin 60% 62% 57% 60% 64% 66% 68%

Incremental Adjusted EBITDA Margin 69% 64% 44% 70% 81% 76% 74%

Other expense, net

Interest expense 22 42 -50 -100 -100 -100 -100

Other income (expense), net (2) (19) 0 0 0 0 0

ProForma Pre Tax Income (ex SBC) 1,027 1,913 2,331 2,933 3,796 4,885 6,186

Assumed Normalized Taxes (Tax Rate of 35%) 359 670 816 1,026 1,329 1,710 2,165

Pro Forma Net Income (Ex SBC) 1,243 1,515 1,906 2,468 3,175 4,021

ProForma Fully Diluted Shares Outstanding 2,698 2,769 2,797 2,825 2,854

Pro Forma Fully Diluted EPS (ex SBC) $0.56 $0.69 $0.88 $1.12 $1.41


May 7, 2012

INCOME STATEMENT ($ In Millions) - FY End: December

Facebook Quarterly Earnings Model: Sterne AgeeArvind Bhatia, CFA (214) 702 - 4001

2010A 1Q:11A 2Q:11A 3Q:11A 4Q:11A 2011A 1Q:12A 2Q:12E 3Q:12E 4Q:12E 2012E 1Q:13E 2Q:13E 3Q:13E 4Q:13E 2013E

Advertising Revenue 1,869$ 637$ 776$ 798$ 943$ 3,154$ 872$ 1,021$ 1,044$ 1,208$ 4,145$ 1,123$ 1,288$ 1,321$ 1,506$ 5,238$

Payments and other fees revenues 106$ 94$ 119$ 156$ 188$ 557$ 186$ 194$ 227$ 256$ 863$ 243$ 240$ 276$ 299$ 1,059$

Revenue ($MM) 1,975$ 731$ 895$ 954$ 1,131$ 3,711$ 1,058$ 1,215$ 1,271$ 1,464$ 5,008$ 1,367$ 1,528$ 1,597$ 1,805$ 6,297$

Y/Y % Chg-- Advertising Revenue 87% 83% 77% 44% 69% 37% 32% 31% 28% 31% 29% 26% 27% 25% 26%

Y/Y % Chg-- Payments Revenue 1780% 1388% 818% 147% 425% 98% 63% 45% 36% 55% 31% 23% 22% 17% 23%

Y/Y % Chg-- Revenue 112% 107% 104% 55% 88% 45% 36% 33% 29% 35% 29% 26% 26% 23% 26%

Sequential Change -- Advertising Revenue -3% 22% 3% 18% -8% 17% 2% 16% -7% 15% 3% 14%

Sequential Change -- Payments Revenue 24% 27% 31% 21% -1% 4% 17% 13% -5% -1% 15% 8%

Sequential Change -- Revenue 0% 22% 7% 19% -6% 15% 5% 15% -7% 12% 5% 13%

Costs and Expenses

Cost of revenue 493 167 207 233 244 851 273 303 328 343 1,247 358 373 388 403 1,522

Gross Profits 1,482 564 688 721 887 2,860 785 912 943 1,121 3,761 1,009 1,155 1,209 1,402 4,775

Gross Margin 75% 77% 77% 76% 78% 77.1% 74% 75% 74% 77% 75.1% 74% 76% 76% 78% 76%

YOY Chg (bps) 374 614 257 363 (105) 203 (296) (181) (139) (186) (197) (39) 52 152 111 73

Marketing and sales 184 68 92 108 116 384 136 156 171 181 644 188 198 208 218 812

% of Revenue 9% 9% 10% 11% 10% 10% 13% 13% 13% 12% 13% 14% 13% 13% 12% 13%

Research and development 134 53 64 75 82 274 93 108 123 133 457 143 153 163 173 632

% of Revenue 7% 7% 7% 8% 7% 7% 9% 9% 10% 9% 9% 10% 10% 10% 10% 10%

General and administrative 113 48 61 54 65 228 72 92 102 112 378 117 122 127 132 498

Total Operating Expenses 431 169 217 237 263 886 301 356 396 426 1,479 448 473 498 523 1,942

Income from operations (EBIT) 1,051 395 471 484 624 1,974 484 556 547 695 2,281 561 682 711 879 2,833

Dep & Amort costs included in costs above 139 51 323 110 130 160 190 590 205 225 245 265 940

Adjusted EBITDA (ex Stock based comp) 1,190$ 446$ 2,297$ 594$ 686$ 707$ 885$ 2,871$ 766$ 907$ 956$ 1,144$ 3,773$

% Y/Y Growth 93% 25% 29% 32% 35% 29% 31%

% Sequential Growth -13% 18% 5% 20%

Adjusted EBITDA Margin 60% 62% 56% 56% 56% 60% 57% 56% 59% 60% 63% 60%

Incremental Adjusted EBITDA Margin 69% 64% 45% 44% 70%

Other expense, net

Interest expense 22 42 (12.5) (12.5) (12.5) (12.5) -50 -25 -25 -25 -25 -100

Other income (expense), net (2) (19) - - - - 0 0 0 0 0

ProForma Pre Tax Income (ex SBC) 1,027 1,913 497 569 559 707 2,331 586 707 736 904 2,933

Assumed Normalized Taxes (Tax Rate of 35%) 359 670 174 199 196 247 816 205 247 258 316 1,026

Pro Forma Net Income (Ex SBC) 1,243 323 370 364 460 1,515 381 459 479 588 1,906

ProForma Fully Diluted Shares Outstanding 2,558 2,738 2,745 2,752 2,698 2,759 2,766 2,773 2,780 2,769

Pro Forma Fully Diluted EPS (ex SBC) $0.13 $0.13 $0.13 $0.17 $0.56 $0.14 $0.17 $0.17 $0.21 $0.69


May 7, 2012

FACEBOOK BALANCE SHEET

FY End: December ($ in millions)

2010A 2011A 1Q:12A

Assets

Current assets

Cash and equivalents 1,785$ 1,512$ 1,282$

Marketable securities - 2,396 2,628

Accounts Receivable 373 547 482

Prepaid expenses 88 149 302

Total current assets 2,246 4,604 4,694

Property and equipment, net 574 1,475 1,855

Goodwill and intagible assets, net 96 162 189

Other assets 74 90 121

Total assets 2,990$ 6,331$ 6,859$

Liabilities and stockholder's equity

Current liabilities

Accounts payable 29 63 129

Platform partners payable 75 171 178

Accrued expenses and other current liabilities 137 296 337

Deferred revenue and deposits 42 90 93

Current portion of capital lease obligations 106 279 302

Total current liabilities 389 899 1,039

Capital lease obligations, less current portion 117 398 404

Long-term debt 250 - -

Other liabilities 72 135 144

Total liabilities 828$ 1,432$ 1,587$

Stockholders' equity

Convertible preferred stock 615 615 615

Common stock - - -

Additional paid-in capital 947 2,684 2,853

Accumulated other comprehensive loss (6) (6) (7)

Retained earnings 606 1,606 1,811

Total stockholders' equity 2,162 4,899 5,272

Total liabilities and stockholders' equity 2,990$ 6,331$ 6,859$

Source: Company Reports

May 7, 2012

FACEBOOK STATEMENT OF CASH FLOWS

FY End: December ($ in millions)

2009A 2010A 2011A 1Q:12A

Cash flows from operating activities

Net income 229$ 606$ 1,000$ 205$

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 78 139 323 110

Loss on write-off of equipment 1 3 4 1

Share-based compensation 27 20 217 103

Tax benefit from share-based award activity 50 115 433 54

Excess tax benefit from share-based award activity (51) (115) (433) (54)

Changes in assets and liabilities:

Accounts receivable (112) (209) (174) 65

Prepaid expenses and other current assets (30) (38) (31) (28)

Other assets (59) 17 (32) (32)

Accounts payable (7) 12 6 (3)

Platform partners payable — 75 96 7

Accrued expenses and other current liabilities 27 20 38 2

Deferred revenue and deposits 1 37 49 3

Other liabilities 1 16 53 8

Net cash provided by operating activities 155$ 698$ 1,549$ 441$

Cash flows from investing activities

Purchases of property and equipment (33) (293) (606) (453)

Purchases of marketable securities — — (3,025) (876)

Maturities of marketable securities — — 516 567

Sales of marketable securities — — 113 69

Investments in non-marketable equity securities — — (3) (1)

Acquisitions of business, net of cash acquired, and purchases of intangible and other assets 3 (22) (24) (25)

Change in restricted cash and deposits (32) (9) 6 (1)

Net cash used in investing activities (62)$ (324)$ (3,023)$ (720)$

Cash flows from financing activities

Net proceeds from issuance of convertible preferred stock 200 — — -

Net proceeds from issuance of common stock — 500 998 -

Proceeds from exercise of stock options 9 6 28 5

Proceeds from (repayments of) long-term debt — 250 (250) -

Proceeds from sale and lease-back transactions 31 — 170 62

Principal payments on capital lease obligations (48) (90) (181) (71)

Excess tax benefit from share-based award activity 51 115 433 54

Net cash provided by financing activities 243$ 781$ 1,198$ 50$

Effect of exchange rate changes on cash and cash equivalents — (3) 3 (1)

Net increase (decrease) in cash and cash equivalents 336 1,152 (273) (230)

Cash and cash equivalents at beginning of period 297 633 1,785 1,512

Cash and cash equivalents at end of period 633$ 1,785$ 1,512$ 1,282$

Source: Company Reports

May 7, 2012

TRENDS

May 7, 2012

Reach

1Q:09A 2Q:09A 3Q:09A 4Q:09A 1Q:10A 2Q:10A 3Q:10A 4Q:10A 1Q:11A 2Q:11A 3Q:11A 4Q:11A 1Q:12A

EOP MAUs

US & Canada 68 81 99 112 130 137 144 154 163 169 176 179 188

Europe 71 85 101 117 138 151 167 183 201 212 221 229 241

Asia (Ex China) 22 32 48 62 81 96 113 138 156 174 196 212 230

Rest of World 35 44 57 69 83 98 126 133 161 183 207 225 242

Total 196 242 305 360 432 482 550 608 681 738 800 845 901

Net Sequential MAUs Adds

US & Canada 13 18 13 18 7 7 10 9 6 7 3 9

Europe 14 16 16 21 13 16 16 18 11 9 8 12

Asia (Ex China) 10 16 14 19 15 17 25 18 18 22 16 18

Rest of World 9 13 12 14 15 28 7 28 22 24 18 17

Total 46 63 55 72 50 68 58 73 57 62 45 56

Sequential MAU % Growth

US & Canada 19% 22% 13% 16% 5% 5% 7% 6% 4% 4% 2% 5%

Europe 20% 19% 16% 18% 9% 11% 10% 10% 5% 4% 4% 5%

Asia 45% 50% 29% 31% 19% 18% 22% 13% 12% 13% 8% 8%

Rest of World 26% 30% 21% 20% 18% 29% 6% 21% 14% 13% 9% 8%

Total 23% 26% 18% 20% 12% 14% 11% 12% 8% 8% 6% 7%

Source of Sequential MAU Growth

US & Canada 28% 29% 24% 25% 14% 10% 17% 12% 11% 11% 7% 16%

Europe 30% 25% 29% 29% 26% 24% 28% 25% 19% 15% 18% 21%

Asia 22% 25% 25% 26% 30% 25% 43% 25% 32% 35% 36% 32%

Rest of World 20% 21% 22% 19% 30% 41% 12% 38% 39% 39% 40% 30%

Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

EOP MAU YOY % Growth

US & Canada 91% 69% 45% 38% 25% 23% 22% 16% 15%

Europe 94% 78% 65% 56% 46% 40% 32% 25% 20%

Asia 268% 200% 135% 123% 93% 81% 73% 54% 47%

Rest of World 137% 123% 121% 93% 94% 87% 64% 69% 50%

Total 120% 99% 80% 69% 58% 53% 45% 39% 32%

EOP MAU Mix

US & Canada 35% 33% 32% 31% 30% 28% 26% 25% 24% 23% 22% 21% 21%

Europe 36% 35% 33% 33% 32% 31% 30% 30% 30% 29% 28% 27% 27%

Asia 11% 13% 16% 17% 19% 20% 21% 23% 23% 24% 25% 25% 26%

Rest of World 18% 18% 19% 19% 19% 20% 23% 22% 24% 25% 26% 27% 27%

Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

Average MAUs YOY % Growth

US & Canada 79% 56% 41% 31% 24% 23% 19% 16%

Europe 85% 71% 61% 51% 43% 36% 29% 22%

Asia 228% 161% 128% 106% 86% 77% 63% 50%

Rest of World 129% 122% 106% 93% 90% 74% 67% 59%

Total 109% 89% 74% 63% 55% 49% 42% 35%

Full Year MAU % Growth Y/Y 88% 48%

Source: Company reports and Sterne Agee estimates

May 7, 2012

Reach

2Q:12E 3Q:12E 4Q:12E 1Q:13E 2Q:13E 3Q:13E 4Q;13E 1Q:14E 2Q:14E 3Q:14E 4Q:14E 1Q:15E 2Q:15E 3Q:15E 4Q:15E 1Q:16E 2Q:16E 3Q:16E 4Q:16E

EOP MAUs

US & Canada 192 196 200 203 206 209 212 215 217 220 222 224 225 227 228 229 229 230 231

Europe 249 257 265 271 277 283 289 293 297 301 305 309 313 317 321 323 325 327 329

Asia (Ex China) 245 260 275 290 305 320 335 350 365 380 395 408 421 434 447 457 467 477 484

Rest of World 257 272 287 300 313 326 339 349 359 369 379 389 399 409 419 429 439 449 457

Total 943 985 1027 1064 1101 1138 1175 1207 1238 1270 1301 1330 1358 1387 1415 1438 1461 1483 1501

Net Sequential MAUs Adds

US & Canada 4 4 4 3 3 3 3 3 3 3 3 2 2 2 2 1 1 1 0

Europe 8 8 8 6 6 6 6 4 4 4 4 4 4 4 4 2 2 2 2

Asia (Ex China) 15 15 15 15 15 15 15 15 15 15 15 13 13 13 13 10 10 10 7

Rest of World 15 15 15 13 13 13 13 10 10 10 10 10 10 10 10 10 10 10 8

Total 42 42 42 37 37 37 37 31.5 31.5 31.5 31.5 28.5 28.5 28.5 28.5 22.8 22.8 22.8 17.7

Sequential MAU % Growth

US & Canada 2% 2% 2% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 0% 0% 0% 0%

Europe 3% 3% 3% 2% 2% 2% 2% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1%

Asia 7% 6% 6% 5% 5% 5% 5% 4% 4% 4% 4% 3% 3% 3% 3% 2% 2% 2% 2%

Rest of World 6% 6% 6% 5% 4% 4% 4% 3% 3% 3% 3% 3% 3% 3% 2% 2% 2% 2% 2%

Total 5% 4% 4% 4% 3% 3% 3% 3% 3% 3% 2% 2% 2% 2% 2% 2% 2% 2% 1%

Source of Sequential MAU Growth

US & Canada 10% 10% 10% 8% 8% 8% 8% 8% 8% 8% 8% 5% 5% 5% 5% 3% 3% 3% 3%

Europe 19% 19% 19% 16% 16% 16% 16% 13% 13% 13% 13% 14% 14% 14% 14% 9% 9% 9% 11%

Asia 36% 36% 36% 41% 41% 41% 41% 48% 48% 48% 48% 46% 46% 46% 46% 44% 44% 44% 42%

Rest of World 36% 36% 36% 35% 35% 35% 35% 32% 32% 32% 32% 35% 35% 35% 35% 44% 44% 44% 44%

Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

EOP MAU YOY % Growth

US & Canada 14% 11% 12% 8% 7% 7% 6% 6% 5% 5% 5% 4% 4% 3% 3% 2% 2% 2% 1%

Europe 17% 16% 16% 12% 11% 10% 9% 8% 7% 6% 6% 5% 5% 5% 5% 5% 4% 3% 3%

Asia 41% 33% 30% 26% 24% 23% 22% 21% 20% 19% 18% 17% 15% 14% 13% 12% 11% 10% 8%

Rest of World 40% 31% 28% 24% 22% 20% 18% 16% 15% 13% 12% 11% 11% 11% 11% 10% 10% 10% 9%

Total 28% 23% 22% 18% 17% 16% 14% 13% 12% 12% 11% 10% 10% 9% 9% 8% 8% 7% 6%

EOP MAU Mix

US & Canada 20% 20% 19% 19% 19% 18% 18% 18% 18% 17% 17% 17% 17% 16% 16% 16% 16% 16% 15%

Europe 26% 26% 26% 25% 25% 25% 25% 24% 24% 24% 23% 23% 23% 23% 23% 22% 22% 22% 22%

Asia 26% 26% 27% 27% 28% 28% 29% 29% 29% 30% 30% 31% 31% 31% 32% 32% 32% 32% 32%

Rest of World 27% 28% 28% 28% 28% 29% 29% 29% 29% 29% 29% 29% 29% 29% 30% 30% 30% 30% 30%

Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

Average MAUs YOY % Growth

US & Canada 14% 12% 12% 10% 8% 7% 6% 6% 6% 5% 5% 4% 4% 3% 3% 3% 2% 2% 1%

Europe 19% 17% 16% 14% 12% 11% 10% 9% 8% 7% 6% 5% 5% 5% 5% 5% 4% 4% 3%

Asia 44% 36% 31% 28% 25% 24% 22% 21% 20% 19% 18% 17% 16% 15% 14% 13% 11% 10% 9%

Rest of World 45% 36% 29% 26% 23% 21% 19% 17% 15% 14% 12% 12% 11% 11% 11% 10% 10% 10% 9%

Total 30% 25% 22% 20% 17% 16% 15% 14% 13% 12% 11% 10% 10% 9% 9% 8% 8% 7% 7%

Full Year MAU % Growth Y/Y 26% 16% 12% 9% 7%


May 7, 2012

Engagement1Q:09A 2Q:09A 3Q:09A 4Q:09A 1Q:10A 2Q:10A 3Q:10A 4Q:10A 1Q:11A 2Q:11A 3Q:11A 4Q:11A 1Q:12A

DAUs

US & Canada 35 40 53 64 82 85 92 99 105 117 124 126 129

Europe 35 39 50 63 79 85 94 107 120 127 135 143 152

Asia 9 13 20 29 39 45 54 64 72 85 98 105 119

Rest of World 14 16 22 29 35 42 54 58 74 87 100 109 126

Total 93 108 145 185 235 257 294 328 371 416 457 483 526

Sequential Growth

US & Canada 14% 33% 21% 28% 4% 8% 8% 6% 11% 6% 2% 2%

Europe 11% 28% 26% 25% 8% 11% 14% 12% 6% 6% 6% 6%

Asia 44% 54% 45% 34% 15% 20% 19% 13% 18% 15% 7% 13%

Rest of World 14% 38% 32% 21% 20% 29% 7% 28% 18% 15% 9% 16%

Total 16% 34% 28% 27% 9% 14% 12% 13% 12% 10% 6% 9%

DAU Mix

US & Canada 38% 37% 37% 35% 35% 33% 31% 30% 28% 28% 27% 26% 25%

Europe 38% 36% 34% 34% 34% 33% 32% 33% 32% 31% 30% 30% 29%

Asia 10% 12% 14% 16% 17% 18% 18% 20% 19% 20% 21% 22% 23%

Rest of World 15% 15% 15% 16% 15% 16% 18% 18% 20% 21% 22% 23% 24%

Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

DAU % of Avg MAU

US & Canada 51% 54% 59% 61% 68% 64% 65% 66% 66% 70% 72% 71% 70%

Europe 49% 50% 54% 58% 62% 59% 59% 61% 63% 62% 62% 64% 65%

Asia 41% 48% 50% 53% 55% 51% 52% 51% 49% 52% 53% 51% 54%

Rest of World 40% 41% 44% 46% 46% 46% 48% 45% 50% 51% 51% 50% 54%

Total 47% 49% 53% 56% 59% 56% 57% 57% 58% 59% 59% 59% 60.3%


May 7, 2012

Engagement2Q:12E 3Q:12E 4Q:12E 1Q:13E 2Q:13E 3Q:13E 4Q;13E 1Q:14E 2Q:14E 3Q:14E 4Q:14E 1Q:15E 2Q:15E 3Q:15E 4Q:15E 1Q:16E 2Q:16E 3Q:16E 4Q:16E

DAUs

US & Canada 135 138 141 143 145 148 150 152 154 156 158 159 161 162 163 164 165 165 166

Europe 161 166 172 176 181 185 190 193 196 200 203 206 209 213 216 218 220 222 224

Asia 132 140 149 159 169 179 189 199 209 220 230 240 250 260 270 278 286 295 302

Rest of World 139 147 156 163 171 179 187 194 200 206 213 220 226 233 240 247 253 260 266

Total 567 591 618 642 666 691 716 738 760 782 804 825 846 867 889 907 925 943 958

Sequential Growth

US & Canada 5% 2% 2% 2% 2% 2% 2% 1% 1% 1% 1% 1% 1% 1% 1% 0% 0% 0% 0%

Europe 6% 3% 3% 3% 3% 2% 2% 2% 2% 2% 2% 2% 2% 2% 2% 1% 1% 1% 1%

Asia 11% 6% 7% 6% 6% 6% 6% 5% 5% 5% 5% 4% 4% 4% 4% 3% 3% 3% 2%

Rest of World 10% 6% 6% 5% 5% 5% 4% 3% 3% 3% 3% 3% 3% 3% 3% 3% 3% 3% 2%

Total 8% 4% 5% 4% 4% 4% 4% 3% 3% 3% 3% 3% 3% 3% 2% 2% 2% 2% 2%

DAU Mix

US & Canada 24% 23% 23% 22% 22% 21% 21% 21% 20% 20% 20% 19% 19% 19% 18% 18% 18% 18% 17%

Europe 28% 28% 28% 27% 27% 27% 27% 26% 26% 26% 25% 25% 25% 25% 24% 24% 24% 24% 23%

Asia 23% 24% 24% 25% 25% 26% 26% 27% 28% 28% 29% 29% 30% 30% 30% 31% 31% 31% 32%

Rest of World 24% 25% 25% 25% 26% 26% 26% 26% 26% 26% 26% 27% 27% 27% 27% 27% 27% 28% 28%

Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

DAU % of Avg MAU

US & Canada 70% 70% 70% 70% 71% 71% 71% 71% 71% 71% 71% 71% 71% 71% 72% 72% 72% 72% 72%

Europe 65% 65% 65% 65% 65% 65% 66% 66% 66% 66% 66% 67% 67% 67% 67% 67% 68% 68% 68%

Asia 54% 54% 54% 55% 55% 56% 56% 57% 57% 58% 58% 59% 59% 60% 60% 61% 61% 62% 62%

Rest of World 54% 54% 54% 54% 55% 55% 55% 55% 56% 56% 56% 56% 57% 57% 57% 57% 58% 58% 58%

Total 61.5% 61.3% 61% 61% 62% 62% 62% 62% 62% 62% 63% 63% 63% 63% 63% 64% 64% 64% 64%


May 7, 2012

Monetization ARPU = Revenue/Average MAU for the period

1Q:09A 2Q:09A 3Q:09A 4Q:09A 1Q:10A 2Q:10A 3Q:10A 4Q:10A 1Q:11A 2Q:11A 3Q:11A 4Q:11A 1Q:12A

Advertising ARPU

US & Canada 1.73$ 1.82$ 1.85$ 2.41$ 2.09$ 2.37$ 2.29$ 2.60$ 2.28$

Europe 0.75$ 0.89$ 0.82$ 1.15$ 1.07$ 1.19$ 1.13$ 1.36$ 1.17$

Asia 0.31$ 0.35$ 0.34$ 0.42$ 0.38$ 0.45$ 0.48$ 0.47$ 0.45$

Rest of World 0.16$ 0.23$ 0.21$ 0.32$ 0.30$ 0.35$ 0.36$ 0.37$ 0.34$

Total 0.86$ 0.93$ 0.87$ 1.13$ 0.99$ 1.09$ 1.04$ 1.15$ 1.00$

YoY $ Chg Advtg ARPU

US & Canada 0.37$ 0.55$ 0.44$ 0.19$ 0.19$

Europe 0.32$ 0.30$ 0.31$ 0.21$ 0.09$

Asia 0.07$ 0.10$ 0.13$ 0.04$ 0.07$

Rest of World 0.14$ 0.12$ 0.15$ 0.05$ 0.04$

Total 0.13$ 0.17$ 0.17$ 0.02$ 0.01$

Payments ARPU

US & Canada 0.04$ 0.04$ 0.08$ 0.36$ 0.39$ 0.46$ 0.50$ 0.59$ 0.58$

Europe -$ 0.01$ 0.03$ 0.10$ 0.12$ 0.15$ 0.21$ 0.24$ 0.23$

Asia -$ -$ 0.01$ 0.04$ 0.04$ 0.05$ 0.09$ 0.10$ 0.09$

Rest of World -$ -$ 0.01$ 0.02$ 0.02$ 0.02$ 0.04$ 0.04$ 0.03$

Total 0.01$ 0.02$ 0.03$ 0.13$ 0.15$ 0.17$ 0.20$ 0.23$ 0.21$

YoY $ Chg Payments ARPU

US & Canada 0.35$ 0.42$ 0.43$ 0.24$ 0.19$

Europe 0.12$ 0.14$ 0.18$ 0.15$ 0.11$

Asia 0.04$ 0.05$ 0.08$ 0.06$ 0.05$

Rest of World 0.02$ 0.02$ 0.03$ 0.02$ 0.01$

Total 0.13$ 0.15$ 0.17$ 0.10$ 0.07$

Total ARPU

US & Canada 1.77$ 1.87$ 1.93$ 2.77$ 2.49$ 2.84$ 2.79$ 3.19$ 2.86$

Europe 0.75$ 0.89$ 0.84$ 1.25$ 1.19$ 1.33$ 1.34$ 1.60$ 1.40$

Asia 0.31$ 0.35$ 0.35$ 0.46$ 0.42$ 0.50$ 0.56$ 0.56$ 0.53$

Rest of World 0.16$ 0.23$ 0.22$ 0.33$ 0.32$ 0.38$ 0.40$ 0.40$ 0.37$

Total 0.87$ 0.94$ 0.91$ 1.26$ 1.14$ 1.26$ 1.24$ 1.37$ 1.21$

YoY $ Change in ARPU

US & Canada 0.72$ 0.97$ 0.87$ 0.43$ 0.38$

Europe 0.44$ 0.44$ 0.50$ 0.36$ 0.20$

Asia 0.11$ 0.15$ 0.21$ 0.10$ 0.11$

Rest of World 0.16$ 0.15$ 0.18$ 0.07$ 0.05$

Total 0.27$ 0.32$ 0.34$ 0.11$ 0.08$

$ per DAU

US & Canada 2.61$ 0.97$ 0.92$ 1.26$ 1.06$ 1.13$ 1.05$ 1.17$ 4.07$

Europe 1.22$ 1.52$ 1.43$ 2.04$ 1.91$ 2.17$ 2.15$ 2.52$ 2.16$

Asia 0.56$ 0.69$ 0.69$ 0.91$ 0.86$ 0.96$ 1.06$ 1.10$ 0.99$

Rest of World 0.34$ 0.50$ 0.46$ 0.74$ 0.64$ 0.75$ 0.78$ 0.80$ 0.69$

Total 1.46$ 1.67$ 1.59$ 2.23$ 1.97$ 2.15$ 2.09$ 2.34$ 2.01$


May 7, 2012

Monetization

2Q:12E 3Q:12E 4Q:12E 1Q:13E 2Q:13E 3Q:13E 4Q;13E 1Q:14E 2Q:14E 3Q:14E 4Q:14E 1Q:15E 2Q:15E 3Q:15E 4Q:15E 1Q:16E 2Q:16E 3Q:16E 4Q:16E

Advertising ARPU

US & Canada 2.56$ 2.49$ 2.81$ 2.50$ 2.79$ 2.73$ 3.06$ 2.76$ 3.06$ 3.01$ 3.35$ 3.06$ 3.37$ 3.32$ 3.68$ 3.40$ 3.72$ 3.68$ 4.05$

Europe 1.28$ 1.23$ 1.47$ 1.29$ 1.41$ 1.38$ 1.63$ 1.45$ 1.59$ 1.56$ 1.82$ 1.66$ 1.80$ 1.78$ 2.05$ 1.90$ 2.05$ 2.05$ 2.33$

Asia 0.52$ 0.55$ 0.55$ 0.54$ 0.62$ 0.67$ 0.68$ 0.68$ 0.77$ 0.83$ 0.85$ 0.86$ 0.96$ 1.02$ 1.05$ 1.08$ 1.18$ 1.26$ 1.30$

Rest of World 0.39$ 0.41$ 0.42$ 0.41$ 0.47$ 0.50$ 0.52$ 0.52$ 0.59$ 0.63$ 0.66$ 0.67$ 0.75$ 0.80$ 0.84$ 0.85$ 0.95$ 1.01$ 1.06$

Total 1.11$ 1.08$ 1.20$ 1.07$ 1.19$ 1.18$ 1.30$ 1.19$ 1.32$ 1.32$ 1.45$ 1.36$ 1.49$ 1.51$ 1.64$ 1.57$ 1.71$ 1.74$ 1.88$

YoY $ Chg Advtg ARPU

US & Canada 0.19$ 0.20$ 0.21$ 0.22$ 0.23$ 0.24$ 0.25$ 0.26$ 0.27$ 0.28$ 0.29$ 0.30$ 0.31$ 0.32$ 0.33$ 0.34$ 0.35$ 0.36$ 0.37$

Europe 0.09$ 0.10$ 0.11$ 0.12$ 0.13$ 0.14$ 0.15$ 0.16$ 0.17$ 0.18$ 0.19$ 0.20$ 0.21$ 0.22$ 0.23$ 0.24$ 0.25$ 0.26$ 0.27$

Asia 0.07$ 0.08$ 0.09$ 0.10$ 0.11$ 0.12$ 0.13$ 0.14$ 0.15$ 0.16$ 0.17$ 0.18$ 0.19$ 0.20$ 0.21$ 0.22$ 0.23$ 0.24$ 0.25$

Rest of World 0.04$ 0.05$ 0.06$ 0.07$ 0.08$ 0.09$ 0.10$ 0.11$ 0.12$ 0.13$ 0.14$ 0.15$ 0.16$ 0.17$ 0.18$ 0.19$ 0.20$ 0.21$ 0.22$

Total 0.02$ 0.04$ 0.06$ 0.08$ 0.08$ 0.10$ 0.10$ 0.12$ 0.13$ 0.14$ 0.15$ 0.17$ 0.17$ 0.19$ 0.19$ 0.21$ 0.21$ 0.23$ 0.23$

Payments ARPU

US & Canada 0.62$ 0.63$ 0.70$ 0.66$ 0.69$ 0.70$ 0.74$ 0.69$ 0.71$ 0.72$ 0.77$ 0.72$ 0.74$ 0.75$ 0.80$ 0.74$ 0.77$ 0.78$ 0.82$

Europe 0.23$ 0.28$ 0.30$ 0.28$ 0.27$ 0.32$ 0.33$ 0.30$ 0.29$ 0.34$ 0.35$ 0.32$ 0.31$ 0.34$ 0.35$ 0.32$ 0.31$ 0.34$ 0.35$

Asia 0.06$ 0.10$ 0.10$ 0.09$ 0.06$ 0.10$ 0.10$ 0.09$ 0.06$ 0.10$ 0.10$ 0.09$ 0.06$ 0.10$ 0.10$ 0.09$ 0.06$ 0.10$ 0.10$

Rest of World 0.02$ 0.04$ 0.04$ 0.04$ 0.03$ 0.04$ 0.04$ 0.04$ 0.03$ 0.04$ 0.04$ 0.04$ 0.03$ 0.04$ 0.04$ 0.04$ 0.03$ 0.04$ 0.04$

Total 0.21$ 0.24$ 0.25$ 0.23$ 0.22$ 0.25$ 0.26$ 0.23$ 0.22$ 0.25$ 0.26$ 0.23$ 0.22$ 0.24$ 0.25$ 0.23$ 0.22$ 0.24$ 0.25$

YoY $ Chg Payments ARPU

US & Canada 0.16$ 0.13$ 0.11$ 0.09$ 0.07$ 0.07$ 0.05$ 0.03$ 0.03$ 0.03$ 0.03$ 0.03$ 0.03$ 0.03$ 0.03$ 0.03$ 0.03$ 0.03$ 0.03$

Europe 0.08$ 0.07$ 0.06$ 0.05$ 0.04$ 0.04$ 0.03$ 0.02$ 0.02$ 0.02$ 0.02$ 0.02$ 0.02$ -$ -$ -$ -$ -$ -$

Asia 0.02$ 0.01$ 0.01$ 0.00$ 0.00$ 0.00$ 0.00$ 0.00$ 0.00$ 0.00$ 0.00$ 0.00$ 0.00$ 0.00$ 0.00$ 0.00$ 0.00$ 0.00$ 0.00$

Rest of World 0.00$ 0.00$ 0.00$ 0.00$ 0.00$ 0.00$ 0.00$ 0.00$ 0.00$ 0.00$ 0.00$ 0.00$ 0.00$ 0.00$ 0.00$ 0.00$ 0.00$ 0.00$ 0.00$

Total 0.04$ 0.03$ 0.03$ 0.02$ 0.01$ 0.01$ 0.00$ (0.00)$ (0.00)$ 0.00$ 0.00$ 0.00$ 0.00$ (0.00)$ (0.00)$ (0.00)$ (0.00)$ (0.00)$ (0.00)$

Total ARPU

US & Canada 3.18$ 3.12$ 3.51$ 3.17$ 3.48$ 3.42$ 3.80$ 3.45$ 3.77$ 3.73$ 4.12$ 3.78$ 4.11$ 4.08$ 4.48$ 4.14$ 4.48$ 4.46$ 4.87$

Europe 1.50$ 1.51$ 1.78$ 1.57$ 1.68$ 1.70$ 1.96$ 1.75$ 1.87$ 1.90$ 2.17$ 1.97$ 2.10$ 2.12$ 2.41$ 2.22$ 2.36$ 2.38$ 2.68$

Asia 0.58$ 0.65$ 0.66$ 0.63$ 0.69$ 0.77$ 0.78$ 0.77$ 0.83$ 0.92$ 0.95$ 0.95$ 1.02$ 1.12$ 1.16$ 1.16$ 1.25$ 1.36$ 1.40$

Rest of World 0.42$ 0.45$ 0.46$ 0.44$ 0.50$ 0.54$ 0.56$ 0.55$ 0.62$ 0.67$ 0.70$ 0.70$ 0.78$ 0.84$ 0.88$ 0.89$ 0.98$ 1.05$ 1.10$

Total 1.32$ 1.32$ 1.45$ 1.31$ 1.41$ 1.43$ 1.56$ 1.43$ 1.54$ 1.57$ 1.71$ 1.59$ 1.72$ 1.75$ 1.90$ 1.80$ 1.93$ 1.98$ 2.13$

YoY $ Change in ARPU

US & Canada 0.35$ 0.33$ 0.32$ 0.31$ 0.30$ 0.31$ 0.30$ 0.29$ 0.30$ 0.31$ 0.32$ 0.33$ 0.34$ 0.35$ 0.36$ 0.37$ 0.38$ 0.39$ 0.40$

Europe 0.17$ 0.17$ 0.17$ 0.17$ 0.17$ 0.18$ 0.18$ 0.18$ 0.19$ 0.20$ 0.21$ 0.22$ 0.23$ 0.22$ 0.23$ 0.24$ 0.25$ 0.26$ 0.27$

Asia 0.08$ 0.09$ 0.09$ 0.10$ 0.11$ 0.12$ 0.13$ 0.14$ 0.15$ 0.16$ 0.17$ 0.18$ 0.19$ 0.20$ 0.21$ 0.22$ 0.23$ 0.24$ 0.25$

Rest of World 0.04$ 0.05$ 0.06$ 0.07$ 0.08$ 0.09$ 0.10$ 0.11$ 0.12$ 0.13$ 0.14$ 0.15$ 0.16$ 0.17$ 0.18$ 0.19$ 0.20$ 0.21$ 0.22$

Total 0.06$ 0.08$ 0.08$ 0.10$ 0.09$ 0.11$ 0.11$ 0.12$ 0.13$ 0.14$ 0.15$ 0.17$ 0.18$ 0.18$ 0.19$ 0.20$ 0.21$ 0.22$ 0.23$

$ per DAU

US & Canada 4.48$ 4.39$ 4.94$ 4.46$ 4.89$ 4.81$ 5.34$ 4.84$ 5.28$ 5.22$ 5.75$ 5.28$ 5.73$ 5.68$ 6.23$ 5.77$ 6.23$ 6.19$ 6.76$

Europe 2.29$ 2.30$ 2.70$ 2.38$ 2.54$ 2.56$ 2.95$ 2.64$ 2.81$ 2.85$ 3.25$ 2.94$ 3.13$ 3.14$ 3.55$ 3.28$ 3.47$ 3.50$ 3.92$

Asia 1.04$ 1.17$ 1.17$ 1.12$ 1.21$ 1.34$ 1.36$ 1.32$ 1.42$ 1.57$ 1.60$ 1.58$ 1.69$ 1.84$ 1.89$ 1.89$ 2.01$ 2.17$ 2.24$

Rest of World 0.75$ 0.81$ 0.83$ 0.80$ 0.89$ 0.96$ 1.00$ 0.98$ 1.09$ 1.18$ 1.23$ 1.23$ 1.35$ 1.46$ 1.52$ 1.54$ 1.68$ 1.79$ 1.88$

Total 2.14$ 2.15$ 2.37$ 2.13$ 2.29$ 2.31$ 2.52$ 2.30$ 2.48$ 2.52$ 2.73$ 2.54$ 2.72$ 2.78$ 2.99$ 2.83$ 3.02$ 3.09$ 3.32$


May 7, 2012

Revenue1Q:09A 2Q:09A 3Q:09A 4Q:09A 1Q:10A 2Q:10A 3Q:10A 4Q:10A 1Q:11A 2Q:11A 3Q:11A 4Q:11A 1Q:12A

US & Canada

Advertising 209$ 243$ 260$ 359$ 332$ 394$ 395$ 462$ 419$

Payments and other fees 5$ 6$ 11$ 53$ 62$ 77$ 87$ 105$ 106$

Total 214$ 249$ 271$ 412$ 394$ 471$ 482$ 567$ 525$

YOY Growth

Advertising 59% 62% 52% 29% 26%

Payments and other fees 1140% 1183% 691% 98% 71%

Total 84% 89% 78% 38% 33%

Mix

Advertising 98% 98% 96% 87% 84% 84% 82% 81% 80%

Payments and other fees 2% 2% 4% 13% 16% 16% 18% 19% 20%

Total 100% 100% 100% 100% 100% 100% 100% 100% 100%

Sequential Growth

Advertising 16% 7% 38% -8% 19% 0% 17% -9%

Payments and other fees 20% 83% 382% 17% 24% 13% 21% 1%

Total 16% 9% 52% -4% 20% 2% 18% -7%

Europe

Advertising 96$ 128$ 130$ 201$ 206$ 245$ 245$ 306$ 274$

Payments and other fees -$ 1$ 4$ 17$ 23$ 30$ 45$ 55$ 54$

Total 96$ 129$ 134$ 218$ 229$ 275$ 290$ 361$ 328$

YOY Growth

Advertising 115% 91% 88% 52% 33%

Payments and other fees nm 2900% 1025% 224% 135%

Total 139% 113% 116% 66% 43%

Mix

Advertising 100% 99% 97% 92% 90% 89% 84% 85% 84%


Total

Sequential Growth

Advertising 33% 2% 55% 2% 19% 0% 25% -10%

Payments and other fees nm 300% 325% 35% 30% 50% 22% -2%

Total 34% 4% 63% 5% 20% 5% 24% -9%

Asia

Advertising 22$ 31$ 36$ 53$ 56$ 74$ 88$ 95$ 99$

Payments and other fees -$ -$ 1$ 5$ 6$ 8$ 16$ 20$ 19$

Total 22$ 31$ 37$ 58$ 62$ 82$ 104$ 115$ 118$

YOY Growth

Advertising 155% 139% 144% 79% 77%

Payments and other fees nm nm 1500% 300% 217%

Total 182% 165% 181% 98% 90%

Mix

Advertising 100% 100% 97% 91% 90% 90% 85% 83% 84%


Total 100% 100% 100% 100% 100% 100% 100% 100% 100%

Sequential Growth

Advertising 41% 16% 47% 6% 32% 19% 8% 4%

Payments and other fees nm nm 400% 20% 33% 100% 25% -5%

Total 41% 19% 57% 7% 32% 27% 11% 3%

Rest of World

Advertising 12$ 21$ 24$ 41$ 44$ 61$ 71$ 79$ 79$

Payments and other fees -$ -$ 1$ 2$ 3$ 4$ 7$ 8$ 8$

Total 12$ 21$ 25$ 43$ 47$ 65$ 78$ 87$ 87$

YOY Growth

Advertising 267% 190% 196% 93% 80%

Payments and other fees nm nm 600% 300% 167%

Total 292% 210% 212% 102% 85%

Mix

Advertising 100% 100% 96% 95% 94% 94% 91% 91% 91%


Total 100% 100% 100% 100% 100% 100% 100% 100% 100%

Sequential Growth

Advertising 75% 14% 71% 7% 39% 16% 11% 0%

Payments and other fees nm nm 100% 50% 33% 75% 14% 0%

Total 75% 19% 72% 9% 38% 20% 12% 0%


May 7, 2012

Revenue2Q:12E 3Q:12E 4Q:12E 1Q:13E 2Q:13E 3Q:13E 4Q;13E 1Q:14E 2Q:14E 3Q:14E 4Q:14E 1Q:15E 2Q:15E 3Q:15E 4Q:15E 1Q:16E 2Q:16E 3Q:16E 4Q:16E

US & CanadaAdvertising 487$ 483$ 557$ 504$ 571$ 566$ 644$ 589$ 660$ 656$ 739$ 682$ 755$ 751$ 836$ 776$ 851$ 846$ 932$

Payments and other fees 118$ 122$ 138$ 134$ 140$ 145$ 157$ 147$ 154$ 158$ 170$ 160$ 166$ 169$ 181$ 170$ 176$ 178$ 190$

Total 605$ 605$ 695$ 638$ 711$ 711$ 801$ 736$ 814$ 814$ 910$ 841$ 921$ 920$ 1,017$ 946$ 1,027$ 1,025$ 1,122$

YOY Growth

Advertising 24% 22% 20% 20% 17% 17% 16% 17% 16% 16% 15% 16% 14% 14% 13% 14% 13% 13% 12%

Payments and other fees 53% 41% 32% 26% 19% 18% 13% 10% 10% 9% 9% 8% 8% 7% 6% 6% 6% 5% 5%

Total 28% 26% 23% 22% 18% 17% 15% 15% 14% 15% 14% 14% 13% 13% 12% 12% 11% 11% 10%

Mix

Advertising 81% 80% 80% 79% 80% 80% 80% 80% 81% 81% 81% 81% 82% 82% 82% 82% 83% 83% 83%


Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

Sequential Growth

Advertising 16% -1% 15% -9% 13% -1% 14% -9% 12% -1% 13% -8% 11% -1% 11% -7% 10% -1% 10%

Payments and other fees 11% 4% 13% -3% 5% 3% 8% -6% 4% 3% 8% -6% 4% 2% 7% -6% 3% 2% 6%

Total 15% 0% 15% -8% 11% 0% 13% -8% 11% 0% 12% -8% 10% 0% 11% -7% 9% 0% 9%

Europe

Advertising 313$ 312$ 384$ 345$ 387$ 386$ 465$ 423$ 468$ 467$ 551$ 508$ 559$ 562$ 655$ 611$ 665$ 668$ 763$


Total 369$ 383$ 464$ 420$ 460$ 475$ 561$ 510$ 552$ 568$ 659$ 606$ 654$ 668$ 768$ 714$ 764$ 778$ 880$

YOY Growth

Advertising 28% 27% 26% 26% 23% 23% 21% 22% 21% 21% 19% 20% 20% 20% 19% 20% 19% 19% 17%


Total 34% 32% 29% 28% 25% 24% 21% 21% 20% 20% 17% 19% 19% 18% 17% 18% 17% 16% 15%

Mix

Advertising 85% 82% 83% 82% 84% 81% 83% 83% 85% 82% 84% 84% 85% 84% 85% 86% 87% 86% 87%


Total

Sequential Growth

Advertising 14% 0% 23% -10% 12% 0% 21% -9% 11% 0% 18% -8% 10% 0% 17% -7% 9% 0% 14%

Payments and other fees 2% 27% 13% -6% -3% 22% 7% -9% -4% 20% 6% -9% -3% 12% 6% -9% -4% 11% 6%

Total 12% 4% 21% -9% 9% 3% 18% -9% 8% 3% 16% -8% 8% 2% 15% -7% 7% 2% 13%

Asia

Advertising 122$ 140$ 148$ 154$ 185$ 209$ 223$ 234$ 275$ 308$ 328$ 345$ 396$ 438$ 464$ 486$ 547$ 595$ 625$


Total 138$ 164$ 175$ 178$ 204$ 240$ 256$ 263$ 298$ 344$ 368$ 380$ 423$ 479$ 510$ 525$ 576$ 641$ 675$

YOY Growth

Advertising 65% 59% 56% 56% 51% 50% 51% 52% 49% 47% 47% 48% 44% 42% 41% 41% 38% 36% 35%


Total 68% 58% 53% 51% 48% 46% 46% 48% 46% 44% 44% 44% 42% 39% 38% 38% 36% 34% 32%

Mix

Advertising 89% 85% 84% 86% 91% 87% 87% 89% 92% 90% 89% 91% 94% 91% 91% 93% 95% 93% 93%


Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

Sequential Growth

Advertising 24% 14% 6% 4% 20% 13% 6% 5% 18% 12% 7% 5% 15% 10% 6% 5% 12% 9% 5%

Payments and other fees -20% 61% 13% -12% -22% 59% 12% -13% -23% 58% 11% -13% -23% 56% 10% -14% -24% 55% 9%

Total 17% 19% 7% 2% 15% 17% 7% 3% 13% 15% 7% 3% 11% 13% 6% 3% 10% 11% 5%

Rest of World

Advertising 98$ 109$ 119$ 120$ 145$ 160$ 174$ 178$ 209$ 230$ 248$ 255$ 296$ 323$ 348$ 362$ 412$ 448$ 480$


Total 104$ 119$ 129$ 130$ 153$ 173$ 187$ 190$ 219$ 244$ 263$ 270$ 307$ 339$ 365$ 378$ 424$ 466$ 499$

YOY Growth

Advertising 61% 54% 50% 51% 48% 47% 47% 49% 45% 43% 42% 44% 41% 41% 41% 42% 39% 39% 38%


Total 60% 53% 49% 49% 46% 45% 45% 46% 43% 41% 40% 42% 40% 39% 39% 40% 38% 37% 37%

Mix

Advertising 94% 92% 92% 92% 95% 93% 93% 93% 96% 94% 94% 95% 96% 95% 95% 96% 97% 96% 96%


Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

Sequential Growth

Advertising 24% 11% 9% 1% 21% 11% 9% 2% 18% 10% 8% 3% 16% 9% 8% 4% 14% 9% 7%

Payments and other fees -24% 61% 9% -3% -25% 56% 7% -4% -25% 52% 6% -4% -25% 50% 5% -5% -24% 48% 5%

Total 20% 14% 9% 0% 17% 13% 8% 2% 15% 11% 8% 3% 14% 11% 8% 4% 12% 10% 7%


May 7, 2012

APPENDIX SECTIONIMPORTANT DISCLOSURES:

Regulation Analyst Certification:I, Arvind Bhatia and Brett Strauser, hereby certify the views expressed in this research report accurately reflect my personal views aboutthe subject security(ies) or issuer(s). I further certify that no part of my compensation was, is, or will be, directly or indirectly, relatedto the specific recommendations or views expressed by me in this report.

Research Disclosures:Sterne, Agee & Leach, Inc. makes a market in the following subject companies Apple Inc. and Zynga Inc..

Sterne, Agee & Leach, Inc.'s research analysts receive compensation that is based upon various factors, including Sterne, Agee & Leach,Inc.'s total revenues, a portion of which is generated by investment banking activities.

Sterne Agee & Leach, Inc. expects to receive or intends to seek compensation for investment banking services from the subject companyand/or companies in the next three months.

Price Target Risks & Related Risk Factors:Investment risks associated with the achievement of the price target include, but are not limited to, a company's failure to achieveSterne, Agee & Leach, Inc., earnings and revenue estimates; unforeseen macroeconomic and/or industry events that adversely affectdemand for a company's products or services; product obsolescence; changes in investor sentiment regarding the specific company orindustry; intense and rapidly changing competitive pressures; the continuing development of industry standards; the company's abilityto recruit and retain competent personnel; and adverse market conditions. For a complete discussion of the risk factors that couldaffect the market price of a company's shares, refer to the most recent Form 10-Q or 10-K that a company has filed with the SecuritiesExchange Commission.

Company Specific Risks:Risks. Key risks to FB include 1) slower-than-expected growth; 2) competitive threats from companies like Google; 3) regulatory risks;4) risks associated with entering new international markets etc.

Valuation Methodology:Methodology for assigning ratings and target prices includes qualitative and quantitative factors including an assessment of industrysize, structure, business trends and overall attractiveness; management effectiveness; competition; visibility; financial condition; andexpected total return, among other factors. These factors are subject to change depending on overall economic conditions or industryor company-specific occurrences. Sterne, Agee & Leach, Inc., analysts base valuations on a combination of forward looking earningsmultiples, price-to-revenue multiples, and enterprise-value-to-revenue ratios. Sterne, Agee & Leach, Inc., believes this accurately reflectsthe strong absolute value of earnings, the strong earnings growth rate, the inherent profitability, and adjusted balance sheet factors.Additional company-specific valuation methodology is available through Sterne, Agee & Leach, Inc.

Definition of Investment Ratings:BUY: We expect this stock to outperform the industry over the next 12 months.

NEUTRAL: We expect this stock to perform in line with the industry over the next 12 months.

UNDERPERFORM: We expect this stock to underperform the industry over the next 12 months.

RESTRICTED: Restricted list requirements preclude comment.

Ratings Distribution:

IB Serv./ Past 12Mos.Rating Category Count Percent Count PercentBuy 228 49.78% 12 5.26%Neutral 201 43.89% 6 2.99%Underperform 29 6.33% 0 0.00%

ADDITIONAL INFORMATION AVAILABLE UPON REQUEST: Contact Robert Hoehn at 1-212-338-4731.

Other Disclosures:

Appendix Section, Page I

May 7, 2012

Opinions expressed are our present opinions only. This material is based upon information that we consider reliable, but we do notrepresent that it is accurate or complete, and it should not be relied upon as such. Sterne, Agee & Leach, Inc., its affiliates, or one ormore of its officers, employees, or consultants may, at times, have long or short or options positions in the securities mentioned hereinand may act as principal or agent to buy or sell such securities.

Copyright © 2012 Sterne, Agee & Leach, Inc. All Rights Reserved.

Appendix Section, Page II

May 7, 2012

To receive price charts or other disclosures on the companies mentioned in this report, please visit our website at https://sterneagee.bluematrix.com/sellside/Disclosures.action or contact Sterne, Agee & Leach, Inc. toll-free at (800) 240-1438 or(205) 949-3689.

Appendix Section, Page III

May 7, 2012

https://sterneagee.bluematrix.com/sellside/Disclosures.action

https://sterneagee.bluematrix.com/sellside/Disclosures.action

Email Address for Sterne Agee Employees: first initial + last [email protected] (e.g., [email protected])

Founded in 1901, Sterne Agee has been providing investors like you with high-quality investment opportunities for over a century. During the early years, our founders prominently established themselves in the financial securities industry in the southeastern United States. Today, we have expanded to serve all regions of the country. Sterne, Agee is headquartered in Birmingham, Alabama with offices in 22 states. Sterne Agee is one of the largest independent firms in the country. Sterne, Agee & Leach, Inc. is a division of Sterne Agee Group, Inc., which also includes The Trust Company of Sterne, Agee & Leach, Inc.; Sterne Agee Asset Management, Inc.; Sterne Agee Clearing, Inc.; and Sterne Agee Financial Services, Inc.—www.sterneagee.com

EQUITY CAPITAL MARKETS

Ryan Medo Managing Dir., Eq. Cap. Mkts. (205) 949-3623 William McIlroy Director, Equity Products (212) 338-4781

INSTITUTIONAL SALES Steve Pokorny Head of Institutional Sales (214) 702-4020

INSTITUTIONAL TRADING JT Cacciabaudo Head of Trading (212) 763-8288

EQUITY RESEARCH

Robert Hoehn Director of Research (212) 338-4731

CONSUMER

Apparel Retailing & Toys Margaret Whitfield SVP, Sr. Analyst (973) 519-1019 Tom Nikic, CFA Analyst (212) 338-4784

Interactive Entertainment / Internet Arvind Bhatia, CFA Mng. Dir. (214) 702-4001 Brett Strauser Analyst (214) 702-4009

Footwear & Apparel Sam Poser Mng. Dir. (212) 763-8226 Ben Shamsian Associate (212) 338-4721

Leisure & Entertainment David Bain Mng. Dir. (949) 721-6651 Sherry Yin Associate (949) 721-6651

Restaurants Lynne Collier Mng. Dir. (214) 702-4045 Philip May Analyst (214) 702-4004

ENERGY

Exploration & Production Tim Rezvan, CFA Sr. Analyst (212) 338-4736

Ryan Mueller Analyst (212) 338-4732 Truman Hobbs Associate (212) 338-4767

Oilfield Services & Equipment Stephen D. Gengaro Mng. Dir. (646) 376-5331 Grant Fox Analyst (212) 338-4723 Tripp Schoff Associate (646) 376-5325

FINANCIAL SERVICES

Asset Management Jason Weyeneth, CFA SVP, Sr. Analyst (212) 763-8293 Charles Warren Analyst (646) 376-5309

Banks & Thrifts Matthew Kelley Mng. Dir. (207) 699-5800 Mike I. Shafir SVP, Sr. Analyst (212) 763-8239 Matthew Breese Analyst (207) 699-5800 Brett Rabatin, CFA SVP, Sr. Analyst (877) 457-8625 Kenneth James Analyst (615) 760-1474 Nathan Race Associate (615) 760-1477 Peyton Green Mng. Dir. (877) 492-2663 Zachary Wollam Analyst (615) 760-1468 Todd L. Hagerman Mng. Dir. (212) 338-4744 Robert Greene Analyst (212) 763-8296

Life Insurance John M. Nadel Mng. Dir. (212) 338-4717 Alex Levine Analyst (212) 338-4748

Mortgage Finance & Specialty Finance Henry J. Coffey, Jr., CFA Mng. Dir. (615) 760-1472 Jason Weaver VP, Sr. Analyst (615) 760-1475 Calvin Hotrum Analyst (615) 760-1476

FINANCIAL SERVICES (CONT.)

Property/Casualty Insurance Dan Farrell Mng. Dir. (212) 338-4782 Nitin Chhabra, FCAS Analyst (212) 338-4779

INDUSTRIALS

Aerospace & Defense Peter Arment Mng. Dir. (646) 376-5336 Josh W. Sullivan Analyst (646) 376-5337

Auto, Auto Parts and Auto Retailers Michael P. Ward, CFA Mng. Dir. (646) 376-5375 Ali-Ahmad Faghri Associate (646) 376-5304

Coal, Metals & Mining, Engineering & Construction Michael S. Dudas, CFA Mng. Dir. (646) 376-5329 Satyadeep Jain Analyst (646) 376-5357 Patrick Uotila, CPA Analyst (646) 376-5358

Construction Materials & Diversified Industrials Todd Vencil, CFA SVP, Sr. Analyst (804) 282-7385 Kevin Bennett, CFA Analyst (804) 282-4506

HEALTHCARE

Pharmaceutical Services Greg T. Bolan Mng. Dir. (615) 760-1469 Himanshu Rastogi, PhD, CFA Analyst (615) 760-1478

TECHNOLOGY

Data Networking and Storage Alex Kurtz Mng. Dir (415) 402-6015 Amelia Harris Analyst (415) 402-6018

Financial Technology Greg Smith Mng. Dir (818) 615-2029 Jennifer Dugan Analyst (415) 402-6051

Hardware, Mobile Devices, IT Supply Chain Shaw Wu SVP, Sr. Analyst (415) 362-7431

LED Supply Chain Andrew Huang Mng. Dir. (415) 362-6143 John Shen Associate (415) 402-6052

Semiconductors Vijay Rakesh Mng. Dir. (312) 525-8431 Troy Cowdrey Associate (312) 525-8430

TRANSPORTATION, SERVICES & EQUIPMENT

Jeffrey A. Kauffman Mng. Dir. (212) 338-4765 Sal Vitale VP, Analyst (212) 338-4766

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