Search for cost synergies
A look at Facebook’s financial statements reveals that the company’s operating expenses have risen steadily over the years. *In fiscal 2016, for instance, FB’s operating expenses increased to $15.2 billion, up from $11.7 billion in the prior quarter.
In 2Q17, Facebook’s operating expenses surpassed $4.9 billion, compared to $3.7 billion in 1Q17 and $3.7 billion in 2Q16. Considering that Facebook generated revenues of $9.3 billion in 2Q17, its operating expenses claimed nearly 53% of total revenues generated during the quarter.
Snap paying Google $2.0 billion for data hosting
Facebook’s rising operating expenses could partly be attributed to costs of hosting data on third-party platforms. Snap (SNAP), whose Snapchat service has 173 million daily users compared to WhatsApp’s 1.0 billion daily users, is spending $2.0 billion to host its data on Alphabet’s (GOOGL) Google Cloud over the next five years.
A portion of Snapchat’s data is also hosted on Amazon (AMZN) cloud at the cost of $1.0 billion over the next five years.
Data hosting is not cheap
Snap’s hosting expenses spotlight how costly it could be for Facebook to host WhatsApp data on a third-party cloud platform. As such, bringing the hosting of its digital assets in-house may help Facebook lower its operating cost burden, potentially boosting earnings.
In the meantime, investments in self-hosting, such as the Virginia data center project, could keep Facebook’s costs elevated.