Basic Guide to Understanding a Stock: Facebook Example

Simply put, you are looking for user activity and user growth numbers which should be provided in the filing. | June 10, 2013 by Wall Street Playboys

Assuming that you have access to no financial products such as FactSet, Bloomberg, CapitalIQ, Thomson or otherwise, we thought it would be helpful to give a step by step guide on how to ramp up on a new company from your home computer. Using FaceBook as an example, lets go ahead and start with the website you will visit the most when you start your job on Wall Street (be it investment banking, research or otherwise).

1) SEC Filings and Understanding the Story

The 424B: This is the best spot to start if you’re looking for a long history on the company, grab the first equity raise (IPO) by simply going to this link:

http://www.sec.gov/edgar/searchedgar/companysearch.html

Type in FB for the ticker then enter 424 as your filing. Note, you can search for S-1 documents as well to get a longer history, however IPO price, total raise etc. will not be shown on the cover (page 1 where the banks are shown as well). The good news is you can likely get a few more quarters of back dated information by looking at older S-1’s.

Prospectus Summary & The Offering: Here you will get a “snapshot” or quick view of the Company. Read the entire section. You should write down the key metrics they use to measure success (monthly users, daily users, reach, likes, comments, mobile vs. desktop views etc.). You’ll get a good backdrop here and you can boil down some of the key high level themes. To save you some time the basics are: 1) User Growth, 2) Activity of Users, 3) Monetization of Users. You can take a deeper dive into any company and of course there is more to the story than the three simple points, but now you have a concise understanding of the main tenants of the story.