income statement

Facebook Vs LinkedIn

Submitted To:

Professor Dr. Rylynn Brown

Financial Statement Analysis

Goldey Beacom College

11/22/2013

Table of Contents

Section 1 – Executive Summary

Company # 1 - Facebook:

· Official name of the corporation Facebook, Inc.

· Location of the corporate headquarters 1601 Willow Rd, Menlo Park, CA 94025

· The state in which the company is incorporated Delaware

· Company Internet address www.Facebook.com

· Stock symbol of the corporation and the exchange on which it is traded FB (NASDAQ)

· Fiscal year-end of the corporation December 31, 2012

· Date of the 10-K filing according to the financial statements provided February 1, 2013

· The company’s independent accountant/auditor David A. Ebersman

· The primary products(s) and/or services (s) of the corporation Social networking service

Company # 2- LinkedIn:

· Official name of the corporation LinkedIn Corporation

· Location of the corporate headquarters

2029 Stierlin Court, Mountain View, CA 94043

· The state in which the company is incorporated Delaware

· Company Internet address www.linkedin.com

· Stock symbol of the corporation and the exchange on which it is traded LNKD (NYSE)

· Fiscal year-end of the corporation December 31, 2012

· Date of the 10-K filing according to the financial statements provided February 12, 2013

· The company’s independent accountant/auditor Deloitte & Touche LLP

· The primary products(s) and/or services (s) of the corporation Social networking service (for people in professional occupations)

SECTION 2: BALANCE SHEET ANALYSIS

Vertical Analysis: Facebook

LinkedIn

Year to Year change Analysis:

Facebook

LinkedIn

Horizontal Analysis: Facebook

LinkedIn

Among the items to consider:

a. Comment on any significant changes in each company in assets and liabilities.

b. Comment on any significant changes in each company in the composition of current assets and current liabilities.

c. Which assets in each company have the most significant investment?

d. Are the companies financed primarily with debt or equity?

e. Is the debt primarily short-term or long-term?

f. Compare the balance sheets of both companies with regards to size and composition of assets, liabilities, and stockholder’s equity.

Section 3 –Income Statement

Vertical Analysis:

Company # 1 - Facebook:

*All numbers are in millions and units are in dollars ($) unless otherwise stated

Company # 2- LinkedIn:

*All numbers are in thousands and units are in dollars ($) unless otherwise stated

Year-to-Year Change

Company # 1 – Facebook

*All numbers are in millions and units are in dollars ($) unless otherwise stated

Company # 2- LinkedIn:

*All numbers are in thousands and units are in dollars ($) unless otherwise stated

Horizontal Analysis

Company # 1 – Facebook

*All numbers are in ratios and units are in % unless otherwise stated

Company # 2- LinkedIn:

*All numbers are in ratios and units are in % unless otherwise stated

1) What is the trend, in each company, in total revenues over the three years?

Answer:

Facebook – looking at the numbers above, Facebook did a great job revenue vise.

From $ 1,974 million in 2010, their revenue intensified to around $5000 million by the year 2012, with in between revenue growth of about 190% and about $3,711 million. In 2012, the revenue growth was improved to around 260% compared to 2010. Looking at these numbers, it is very much obvious that Facebook kind of had their users increased every hour of the year and there was a consistent (consistently increased) trend of growth in revenue over the three years period.

LinkedIn – As far as growth of the revenue is concerned, LinkedIn did even better than Facebook. LinkedIn did not make the same amount of money as Facebook did (numbers say that) but their growth was 400% in 2012, compared to 2010. Their trend for growth was consistent. From 2010 to 2011, their revenue went up to 215% which continued to fuel up in 2012. From 2010 with 243,099 K, their revenue increased to 522,189 K in 2011, which continued to rise with the same speed and in same direction to about 972,309 K, in 2012.

2) What is the trend, in each company, in gross profit over the three years?

Answer: Gross profit is the income before the taxes

Facebook – Looking at the numbers above, trend clearly says that there was an immense unstable phase in gross profit from years 2010 to 2012. With the gross profit of $ 1,008 in 2010, there was a decent jump in 2011, with the growth of 168% which collapsed down to only 11% in 2012, with the amount in gross profit of $ 494 million which was $ 1,695 million in 2011. It is very interesting to see the growth in total revenue of 258% in 2012, compared to 2010 but a huge demolition of gross profit over the period of time.

LinkedIn – For the same period of time, i.e. 2010 to 2012, LinkedIn showed a little different trend than Facebook, gross profit vise. Numbers are telling that there was a stable increment in gross profit from the year 2010 to 2011 with a decent jump of about 21% up (121%) from the year 2010, i.e. $ 18,966 K to 22,942 K, Which rose even more in the year 2012 to about $ 57,114 with the growth of about 301% compared to the year 2010. This shows that with the growth in revenue, LinkedIn continued to show promising numbers to their stock holders in gross profit from the period of 2010 to 2012.

3) What is the trend, in each company, in net income over the three years?

Answer:

Facebook – Facebook showed very promising growth of net income in 2011 from 2010, with the growth of about 65% up (165%), but then declined terribly down to only 9% in 2012, while comparing with the year 2010. Facebook created the net income of about $ 606 million in 2010, which rose to $ 1,000 million in the year 2011, but completely collapsed down to have only $ 53 million in 2012. This shows that even though there was huge leap in the total revenue from the years 2010 to 2012, gross profit and net income appeared to have similar, heavily unstable and declining trend from the period of 2010 to 2012.

LinkedIn – on the contrary, LinkedIn showed a strange trend in net income for the period of 2010 to 2012. Strange because, unlike Facebook, LinkedIn showed a stable increment in gross profit in 3 years, whereas their net income declined in 2011 compared to 2010 and then went back up; even more than they had in 2010, in the year of 2012. Horizontal analysis says that LinkedIn declined their net income value to about 77% in the year 2011, compared to the year 2010 –whereas showed rise in 2012 with about 140% compared to 2010 numbers. By doing a little depth comparison between LinkedIn and Facebook, LinkedIn still shows to have a great potential as they were pretty stable in the growth of revenue and gross profit and also showed increment in net income in the latest year compared to the previous one.

4) What is the trend in profit margin over the three years?

Answer:Profit margin or profitability is the ratio of net profit (or net income) divided by total sales (or total revenue)

Profit margin = Net profit (or net income)/Total revenue

Facebook – looking at the numbers in the table (vertical analysis and horizontal analysis) and as discussed in above question, profit margin for Facebook increased in the year 2011 compared to the year 2010 but declined very severely in the year 2012. The cost and expenses went so up over the three years that even a tremendous increment in the revenue did not help increasing the profit margin (or profitability).

LinkedIn – As discussed in the question 3, LinkedIn showed a different trend for profit margin. It did go down in the year 2011, compared to the year 2010 but it did rise up in the year 2012 even more than what was there in the year 2010 and the rise was 40% up (140%). With increasing revenue and even in gross profit, LinkedIn struggled a bit to maintain their profitability in the year 2011 but they did manage well to have their profit back by the year 2012 and showed a great potential to stock holders.

5) Comment on any significant changes in revenues or expenses, negative and positive changes for each company

Facebook – They showed significant changes in the total revenue from the three year period, which started with $ 1,974 million in 2010, and rose to $ 3,711 million which continued in the year 2012 with the raise to % 5,089 million. Another significant feature in the Horizontal Analysis, which is very obvious, is the rise in the cost. The best, most significant and noticeable achievement for Facebook is their jump in the revenue, but they had to spend a lot to reach to achieve those heights of the revenue. They ended up costing a lot, especially in research and development and general/administrative costs compared to the year 2010 which actually ‘cost’ them to have their profit margins way below than previous year.

LinkedIn – LinkedIn also showed a significant growth in the revenue (total) of about 400% in the year 2012, as compared to the year 2010. Even though they had this tremendous achievement, they had to settle down with negative profit margin the year 2011 due to their high costs in every department and due to elevated miscellaneous expenses. However, growth of 400% in the revenue, in the year took care of the above issue and showed them a positive digit in profit margin. They did have their costs raised in all department but they tremendously took care of their other and miscellaneous expenses which helped them to have 40% more profit as compared to the year 2010.

6) Comment on any significant changes in the discontinued operations, extraordinary items, or changes in accounting policy for each company

Answer:

Facebook – looking at the 10k report, it is clear that Facebook lost a lot income coming from the operations. They did have higher revenue in the year 2012 as compared to the years 2010 and 2011 but their income from operations declined significantly in the year 2012 due to discontinuation of various operations. Apart from this, there was not a significant change in their accounting policies, except for their rise in cost in each and every department.

LinkedIn – Unlike Facebook, LinkedIn utilized their income from the operations steadily and with increment every year from 2010 to 2012. However, there was some major accounting change in case of LinkedIn where their provision of taxes rose significantly causing their net income to collapse compared to previous years. There was also change in their other and miscellaneous expenses from year 2010 to 2011 and then again in the year 2012.

SECTION 5: CONCLUSIONS/RECOMMENDATIONS

Draw conclusions from the data that was gathered in the previous sections and determine the relevant position of each of the corporations in all of the analyses. The conclusions/ recommendations must address the following as a comparison between the two companies. The thoughtfulness of the analysis will be the most important factor in the evaluation of this section.

1. What are the overall strengths and weaknesses of each corporation?

Facebook:

Strengths:

Facebook is having a high revenue is the last few years when compared to LinkedIn and gross profit margin is high and net income is higher when compared in numbers. Profit margin is being increased in the recent years with increase in revenue. The revenue rate is comparatively increasing every year. Facebook users are increaseing every hour across the globe which is helping the company to continue its growth.

Weaknesses:

Looking at the numbers it has an unstable revenues and unstable phase of gross profit being a negatively impact on the company, its growth rate gradually decreasing when compared each year. Huge demolition of gross profit is one of the factors which is causing the company's growth. Net income is fluctuating in the past few years and showing a decreasing trend. Increase in cost and expenses to increase their revenue shows that company spending a lot to gain profit margins.

LinkedIn:

Strengths:

It has a continuous growth in the recent years, grabbing a large amount of users across the globe and connecting professional users. When compared to Facebook, LinkedIn has a continuous rise in profit, profit margin, net income and total revenues. The trend shows only upward scale in the past few years by increasing its operations and structures. Its revenue increased 400% from 2010 to 2012 which shows its achievements. Increment in its income from operations shows a positively impact in the industry.

Weaknesses:

When compared to Facebook , Linked in shows less numbers in its income as its being a growing company. It has less users in fact only professional users as their customers.

2. What recommendation would you make to current and potential private or organizational investors in the two corporations?

I would recomend current and potential private or organizational investors invest in LinkedIn because:

Dividend ratio is higher for Facebook and it is highly established company and more boomed in the recent years and its users are increasing every hour, But the new users ration comparatively very low that previous years.

Also, LinkedIn has a higher operating cash flow and increasing profit margins shows that the company's ability to generate more than what is required for the current rate of growth using only its core operations. LinkedIn is one of the financial stable and efficient and it may cross Facebook in few years so it is worthwhile to invest in the company.

3. What recommendation would you make to lenders regarding the credit-worthiness of the corporations?

For Facebook: The company has huge profit margins but it has fluctuations in its income growth and it may not be a profitable company to invest as its growth rate is decreasing slowly. Company has to provide operations to increase the income rather than increasing the cost and expenses to gain margins. Lenders can invest in the company only with a risk in their investment for a higher profits, as its fame is gradually decreasing due to reveling the personal information on websites it may not be better option for investors to invest on companies which has risks in the market.

For LinkedIn: The company is growing every year and its profit margin is showing upward scale. Any investor who invest in LinkedIn would gain profits on their investments. Income from operations is steadily growing every year and liabilities are holding small portions in total. Assets are increasing and stock holders equity is always higher in number.

4. Position, salary and benefits being equal, which company would you prefer to work for?

I would prefer to work with LinkedIn because its growth rate is tremendously high and constantly growing, although Facebook is a huge company but from the recent history its losing its glory and fighting hard to receive profit margins as before with huge fluctuations. LinkedIn is an organization where customers never leave the company and regularly update their professional history and it also grabs new users every year. When company like LinkedIn shows such an impact in the industry I would join in the company for the better career, as it has long term opportunities.

Section 6:

BASED ON FINDINGS

8. How has each of the companies’ stock performed over the last 24 months?

Facebook entered in to stock market on May 18 2012 with a base $30 offer price with a volume of 656M shares. It's been a period of 18 months now and its stock price is 46.70$. It has many up and down scale throughout the year and struggling in the market.

LinkedIn entered into stocks on 19 may 2011 with a base price of 93$ and currently it has increased to 220$ which is showing a upward scale from the day it started in stocks and it was always top of Facebook.

9. Would you say the company has positive or negative momentum moving in to the close of its next fiscal year?

Facebook has a little positive momentum moving in to the close of its fiscal year, its stock was standing at 28$ beginning of the year and till second quarter it was going on a straight line with little up and downs but during second quarter it has picked up and in fourth quarter it is standing at $46 with little fall.

LinkedIn shows constantly positive momentum and standing at $220 from $114, ending its fiscal year with huge and almost 200% increase in its growth rate.

10. Would you change any of your conclusions or recommendations from the previous section based on current financial information?

I would not change any conclusions because LinkedIn is one of the popular and strong company which is growing every day and its opportunities are growing. If I get a chance then I would certainly work with LinkedIn. Facebook has to still grow and find opportunities with some innovations to sustain in the market.

From the observations made about both companies Facebook is gradually falling down but has huge assets and stock holders equity, where as LinkedIn is almost half of Facebook but its growth is tremendously increasing and its stock is growing every day. Which shows a fair comparison between both the companies in its growth.