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That operating margin seems...impressive. Well, hopefully it's not just me, but doesn't 45% seem like they're extraordinarily profitable?

RivieraKid 10y ago
Yes and there's a reason for that. Profit margin is an approximative measure of how monopolistic the company. Facebook is a monopoly - because of network effects it's very hard to compete with them.
jbob2000 10y ago
It's pretty good, but not unheard of. Many banks and insurance companies hover around that number.
- refulgentis 10y ago
  I was under the impression banks are happy to get 5-10% profit margin these days, is there a distinction between operating margin and profit margin that explains that?
- eigenvalue 10y ago
  That's not really comparable because banks and insurers require a huge amount of capital to earn those margins. For example, JP Morgan (a pretty well-run and profitable bank) made a ~32% operating margin in fiscal 2015. But JP Morgan's return on tangible equity (a measure of net profitability relative to capital used) was only ~13%. Facebook, on the other hand, had a return on tangible equity of 25% in the last quarter. And as time goes by, that return on tangible equity should increase quite a bit for Facebook, while it is highly unlikely to improve all that much for JP Morgan because of competition in the banking industry.
  - adventured 10y ago
    Visa is the only financial company I know of with that kind of margin + profit scale. They're nearly capable of 50% net income margins (and $9b in operating income on $13.8b in sales). Also like Facebook they have relatively few employees compared to their immense profit.
  - forgetsusername 10y ago
    >And as time goes by, that return on tangible equity should increase quite a bit for Facebook, while it is highly unlikely to improve all that much for JP Morgan because of competition in the banking industry. But Facebook is also much more likely to disappear due to competition than JP Morgan is.
apaprocki 10y ago
There's an app on the Bloomberg terminal that allows slicing/dicing all this pretty easily. If I take the top 1,000 US listed companies by market cap and then select the top 100 operating margin from that list and bucket it by GICS... there are only 4 "Information Technology" companies higher: Visa, Verisign, Mastercard, and Check Point In other sectors, top 20 in Financials, top 7 in Energy, top 4 in Health Care, top 8 in Real Estate are higher than FB. edit: If you include all companies regardless of market cap, there are 15 in IT higher than FB. In all the US ~13.5k, there's ~300 higher.
- rattray 10y ago
  Thank you for sharing this!
lunula 10y ago
Is it really sustainable? I guess at this point that's as much a question about the future of world culture as anything. Are we going to continue feeding their machine?
- adventured 10y ago
  They have 1.79 billion monthly actives. See any threats on the horizon? I don't. Snapchat for example is more likely to remove a chunk of Twitter's audience than harm Facebook. I can't name a single fast rising Facebook competitor, anywhere in the western world (China obviously has its own social juggernauts). It's likely to continue to be the only social network in the west that is truly wide, spanning almost everyone. That will probably be worth $40+ billion in ad sales in two or three years. 15 years ago, who thought a search engine could scale to $80 billion in advertising? Essentially nobody. Microsoft at the time had $23 billion in sales. You would have been laughed off the planet if you forecast Google's search engine to be worth so much.

RivieraKid 10y ago

Yes and there's a reason for that. Profit margin is an approximative measure of how monopolistic the company. Facebook is a monopoly - because of network effects it's very hard to compete with them.

jbob2000 10y ago

It's pretty good, but not unheard of. Many banks and insurance companies hover around that number.

refulgentis 10y ago
I was under the impression banks are happy to get 5-10% profit margin these days, is there a distinction between operating margin and profit margin that explains that?
eigenvalue 10y ago
That's not really comparable because banks and insurers require a huge amount of capital to earn those margins. For example, JP Morgan (a pretty well-run and profitable bank) made a ~32% operating margin in fiscal 2015. But JP Morgan's return on tangible equity (a measure of net profitability relative to capital used) was only ~13%. Facebook, on the other hand, had a return on tangible equity of 25% in the last quarter. And as time goes by, that return on tangible equity should increase quite a bit for Facebook, while it is highly unlikely to improve all that much for JP Morgan because of competition in the banking industry.
- adventured 10y ago
  Visa is the only financial company I know of with that kind of margin + profit scale. They're nearly capable of 50% net income margins (and $9b in operating income on $13.8b in sales). Also like Facebook they have relatively few employees compared to their immense profit.
- forgetsusername 10y ago
  >And as time goes by, that return on tangible equity should increase quite a bit for Facebook, while it is highly unlikely to improve all that much for JP Morgan because of competition in the banking industry. But Facebook is also much more likely to disappear due to competition than JP Morgan is.

apaprocki 10y ago

There's an app on the Bloomberg terminal that allows slicing/dicing all this pretty easily. If I take the top 1,000 US listed companies by market cap and then select the top 100 operating margin from that list and bucket it by GICS... there are only 4 "Information Technology" companies higher: Visa, Verisign, Mastercard, and Check Point In other sectors, top 20 in Financials, top 7 in Energy, top 4 in Health Care, top 8 in Real Estate are higher than FB. edit: If you include all companies regardless of market cap, there are 15 in IT higher than FB. In all the US ~13.5k, there's ~300 higher.

rattray 10y ago
Thank you for sharing this!

lunula 10y ago

Is it really sustainable? I guess at this point that's as much a question about the future of world culture as anything. Are we going to continue feeding their machine?

adventured 10y ago
They have 1.79 billion monthly actives. See any threats on the horizon? I don't. Snapchat for example is more likely to remove a chunk of Twitter's audience than harm Facebook. I can't name a single fast rising Facebook competitor, anywhere in the western world (China obviously has its own social juggernauts). It's likely to continue to be the only social network in the west that is truly wide, spanning almost everyone. That will probably be worth $40+ billion in ad sales in two or three years. 15 years ago, who thought a search engine could scale to $80 billion in advertising? Essentially nobody. Microsoft at the time had $23 billion in sales. You would have been laughed off the planet if you forecast Google's search engine to be worth so much.