May 16, 2012

Facebook Valuation

By Luis G - T'13

The dividend discount model is one of the valuation techniques I learned in Financial Statement Interpretation and Analysis, a class that prepares students to effectively analyze and interpret financial statements.  Basically, the dividend discount model says that the value of a company is worth the discounted sum of all its future dividend payments.  Now that the Facebook IPO is upon us, a valuation of close to $100 billion, I began to think about the value of other things in my life.


Really big pencils typically found in souvenir shops:  $0 (who buys these anyway?)
Crayons & Coloring Books:  $100 (I always do my homework in crayon)
Strawberry Milk:  $5,000

Further introspection led me to think about the value of the Tuck MBA.  The Tuck MBA obviously pays dividends throughout one’s life so I felt the dividend discount model was the appropriate tool for my valuation.  I expect my dividends to grow by at least 5% and I require a return of about 10% on my Tuck MBA.  

Dividend Components:

Knowledge:  The academics are no doubt the best in the country.  If I look back at what I knew prior to Tuck and what I know now, I can honestly say my knowledge has grown exponentially.  At the very minimum I’m going to say this is worth at least $400 million.
Dinners with CEOs – Tuck is great because so many executives visit Tuck and most of them, if not all, take the time to dine with select students.  No question is off limits; of course you may not get an answer if it’s inappropriate. I’ve been to a few of these and the experiences have been phenomenal: $100 million.
Alumni networking – Tuck alumni love coming back to Hanover and sharing their experiences with students.  They are also very accessible and very responsive to “cold” emails.  Being able to reach out to alumni is worth at least $200 million.
Access to Faculty – I can send a professor an email and I’ll receive a response within 24-hours.  I can also ask any of my professors for office time and I’ll be scheduled within 48 hours:  a value of at least $200 million.
Recruiters – All the top companies recruit on campus and if not we will have a Tuck alum within the organization willing to help out whenever possible.  The professional opportunities seem endless so this has to be worth at least $1 billion
Pizza- At least once a month, however this nets to zero because of the antacids.
Parking tickets – Paid - $100- Unpaid (?).  No effect on my valuation.
Activities – The golf course is about a mile away so I can easily sneak in golf after classes.  This has to be worth at least $100,000 in fun and entertainment.  This will not be pay dividends over my professional life unless my golf game improves.  Let's leave this out.
Friendships - $3 billion.  I’m lucky to be a Tuckie and to have made really good friends. 
Total Value of Dividend:  $5.1 billion
Plug the values into the formula:

Tuck MBA = 5.1/(10% - 5%) = $102 billion.

My Tuck MBA is worth more than Facebook!!!