Did Facebook’s Profitability Improve in Q4?



Facebook’s profits

Facebook (FB) turned a $5.1 billion profit in the third quarter of 2018, its most recent reported period. Alphabet (GOOGL), Twitter (TWTR), and Yelp (YELP) reported profits of $9.2 billion, $789.2 million, and $15 million, respectively, for the third quarter. Snap (SNAP) posted a loss of $325.2 million for the third quarter.

Facebook’s third-quarter profit came on a narrower operating margin of 42% compared to 50% in the year-ago quarter. In the last three quarters, Facebook’s operating margin has been sinking from quarter to quarter.

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High spending hits profit margin

The decline in operating margin has come as Facebook has been investing in building new data centers to expand its storage capacity as its user base expands. For example, Facebook is underway with the development of its first Asian data center in Singapore. Asia is one of the company’s fastest-growing regions.

In addition to infrastructure expansion, investments in preventing abuse of its products and services have also driven up costs at Facebook and hit profit margins.

Fourth-quarter profit margins have been on the rise

Facebook is scheduled to report its results for the fourth quarter of 2018 on January 30. As we approach the reporting date, we note that while Facebook’s operating margin has generally been on a decline in recent quarters, the company’s fourth-quarter operating margins have actually been improving for the last four years. Operating margin in the fourth quarter of 2017 was 57%, a jump from 52% in the fourth quarter of 2016. Operating margins were 44% in the fourth quarter of 2015 and 29% in the fourth quarter of 2014.


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