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What’s Driving Facebook’s Revenue Growth?

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Facebook’s revenue drivers

In this series, we’ll compare the stock performance and various margins of the FAANG stocks—Facebook, Apple (AAPL), Amazon, Netflix, and Alphabet. We’ll start with Facebook.

As shown in the chart below, Facebook’s (FB) revenues grew at a three-year CAGR (compound annual growth rate) of 48.0% in 2017. This revenue growth increased from 44.0% in 2015 to 54.0% in 2016. The social media giant’s revenues rose 47.0% to $40.7 billion in 2017, driven by strong advertising revenues.

Facebook’s advertising revenue contribution to its total revenues increased from 92.0% in 2014 to 98.0% in 2017. Its mobile advertising generated 69.0% of its total revenues in the fourth quarter of 2014 compared to 89.0% in the fourth quarter of 2017.

The social media giant’s number of daily active users rose 14.0% to 1.4 billion in December 2017. Its monthly active users increased 14.0% to 2.1 billion in 2017, driven by India, Indonesia, and Vietnam.

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Facebook’s cost increases over the years

Facebook’s (FB) cost of revenues increased from 33.0% in 2015 to 44.0% in 2017. Its cost of revenues totaled $5.5 billion in 2017, growing at a three-year CAGR of 36.0%. The operational expenses associated with data centers and technical infrastructure drove these cost figures. However, the company has been able to decrease the cost of its revenue margin—the cost as a proportion of revenues—from 17.0% in 2014 to 13.0% in 2017.

Strong revenue growth led to gross profit growth from 46.0% in 2015 to 58.0% in 2016. Facebook’s gross profit increased 48.0% to $35.2 billion in 2017. Facebook’s gross profit has grown at a three-year CAGR of 51.0% in 2017, outpacing its revenue growth. The company’s gross margin improved from 83.0% in 2014 to 87.0% in 2017.

Facebook’s low cost-of-revenue margin is expected to lead to a relatively higher gross margin compared to the other FAANG stocks. We’ll explore this topic in more detail later in this series.

Alphabet’s (GOOG) cost of revenues totaled $45.6 billion in 2017. Apple’s cost of sales totaled $141.0 billion in 2017, and Amazon’s (AMZN) cost of sales reached $111.9 billion in 2017. Netflix’s (NFLX) cost of revenues totaled $7.7 billion in 2017.

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