This article looks at and compares the margins of social media companies, including Meta Platforms, Twitter, Snap Inc., and Pinterest.
The margins that we will look at are gross margin, operating margin, net profit margin, and EBITDA margin.
Before we start, let’s talk a little about margin analysis.
In general, margins indicate the profitability of a company.
Therefore, the higher the margins, the more profits a company makes.
Besides, margins can be compared across companies that operate in the same industry such as in the social media space.
Before making a decision, investors should look at the margins of the companies involved and pick the one that produces the best margins.
Companies with the best margins are usually the one that is the most profitable and performs the best in the long run, not just in the growth of share prices but also in return of capital, including cash dividends and share buyback if there is any.
Besides, a profitable company can easily initiate a cash dividend and/or share buyback if it decided to do so.
In this article, we will specifically look at the margins of Meta, Twitter, Snap, and Pinterest.
Let’s get to it!
Let’s start the discussion with the gross margin for social media companies as shown in the chart above.
Gross margin is also referred to as the markup of the product a company is selling.
For social media companies, the products they are selling are nothing more than the advertisement space on their platforms.
From the first look at the chart, Meta is clearly the leader when it comes to gross profitability as it has the highest gross margin among all social media companies.
In the last 7 years, Meta’s gross margin averaged more than 80% and clocked 78% as of fiscal 2022.
While Meta has been the leading social media company, its gross margin has been on a decline year over year and the latest result reported in fiscal 2022 was the lowest among all prior results.
On the contrary, Snap’s gross margin expanded the fastest despite being the lowest among all social media companies.
As of fiscal 2022, Snap’s gross margin reached 61%, a year-on-year increase of 3 ppt.
Similarly, Pinterest’s gross margin also has been on a tear, reaching as much as 76% as of fiscal 2022, second only to Meta.
Similar to Meta, Twitter’s gross margin has shown signs of a decline and reached only 56% in 2022, the lowest since 2016.
In short, Meta is clogging the best gross margin at close to 80%, way ahead of Twitter, Snap, and Pinterest.
Operating margin is also referred to as the EBIT margin which stands for earnings before interest and taxes margin.
Therefore, the operating margin takes into account most of the costs and expenses of doing business, including operating expenses and costs of goods sold.
However, the operating margin excludes taxes and interest expenses.
That said, according to the chart above, the operating margins of social media companies are vastly different from the gross margins which we saw earlier.
More importantly, nearly half of the social media companies are having their operating margins located in the negative region of the chart.
In particular, Snap and Pinterest are the worst offenders as their respective operating margins are entirely negative in all fiscal years, and some of them have even dipped below -100%, illustrating the huge operating losses that these companies have incurred over the years.
On the contrary, Meta and Twitter’s operating margins are positive in nearly all fiscal years.
However, Twitter has been operating at a loss in recent fiscal years as seen in the chart.
For example, Twitter logged a massive operating loss of 20% in 2022 and 10% in 2021.
On the other hand, Meta is doing particularly well with its operating margin, averaging more than 30% in the last 7 years.
As of fiscal 2022, Meta’s operating margin clocked 25%, the lowest level reported since 2016.
Similar to the gross margin, Meta’s operating margin also has been on a decline over the years, illustrating the decreasing profitability of the company.
While most social media companies have positive gross margins, their operating margins declined considerably after accounting for operating expenses which include the cost of revenues, research and development expenses, sales and marketing, and general and administrative expenses.
The negative margins show that social media companies like Snapchat, Pinterest, and Twitter have enormous operating expenses.
Therefore, after accounting for these operating costs, their operating margins declined considerably and some were even insufficient to cover, resulting in negative figures.
While some operating margins have improved considerably, some show signs of deterioration in recent years.
For example, Meta’s operating margin has declined to only 25% in 2022, the lowest since 2016 while Twitter, Snap Inc., and Pinterest have reported a worse operating margin in 2022 compared to 2021, illustrating the tough operating environment for social media companies going forward.
Nevertheless, Meta was still the crown in the social media space when it comes to profitability.
Net Profit Margin
The net profit margin is also referred to as the earnings after tax or EAT margin.
The net profit margin shows the amount of profit attributable to common stock shareholders after accounting for all costs and expenses of doing business, including interest and taxes.
That said, nearly all social media companies, Snap and Pinterest in particular, have been having a negative net profit margin, indicating that they have been incurring huge losses all these years.
On the other hand, Meta seems to be the only company making a consistent profit while Twitter’s net margin soared to 10% as of 2022.
Despite having been making a stable profit, Meta’s net margin also has been on a decline, tumbling to only 20% as of 2022, the lowest figure since 2016.
Therefore, Meta Platforms is again the crown in the social media space in terms of profitability.
At this level of net profit margin, Meta is making an enormous amount of profit that no other social media companies, including Twitter, Pinterest, and Snap, can match.
EBITDA stands for earnings before interest, taxes, depreciation, and amortization.
EBITDA is cash earnings that come without distortion caused by other items such as depreciation and amortization expenses.
EBITDA is usually adjusted by the company and can be obtained from the respective financial reports.
Aside from the usual items being adjusted, most social media companies also exclude significant items such as stock-based compensation expenses and restructuring costs.
These items can be significantly greater than depreciation and amortization expenses for social media companies as they usually do not have factories or any manufacturing hubs in their operations.
Therefore, the adjusted EBITDA measures the core performance of a social media company, without being distorted by non-core items such as stock-based compensation expenses, depreciation, amortization, restructuring, etc.
Of all social media companies, Meta is the only one that does not provide an EBITDA figure.
Nevertheless, we can still go ahead to compare the adjusted EBITDA margin of other social media companies such as Twitter, Snap, and Pinterest.
Keep in mind that the EBITDA comparison may not be on an apple-to-apple basis since the EBITDA is determined not in accordance with GAAP and each company has its own way of computing the EBITDA despite operating in the same industry.
That said, according to the chart above, Twitter’s EBITDA margin leads the packs, topping more than 50% in 2022 while that of Snapchat and Pinterest came in at 8% and 16%, respectively.
Among the social media platforms, Snap Inc.’s adjusted EBITDA margin has been the lowest in most fiscal years, illustrating that it is the least profitable social media company.
In short, Meta makes the most money as the firm has the highest margins among Pinterest, Snap Inc., and Twitter.
From the perspective of gross, operating, and net profit margins, Meta wins hands down, outdoing other social media firms by a wide margin.
Therefore, Meta was still the most profitable social media company as of fiscal 2022, far ahead of Twitter, Pinterest, and Snap Inc. despite suffering from higher operating costs in 2022.
While other social media companies such as Snap and Pinterest have been lagging behind in terms of margins, they may have the best growth prospect going forward given their excellent margins improvement all these years.
In particular, both Pinterest and Snap have seen their margins turning around from negative to positive figures.
Despite the margin expansion, Snap Inc. was the least profitable social media company as of 2022 as its margins were the lowest compared to Meta, Pinterest, and Twitter.
References and Credits
1. All financial figures in this article were obtained and referenced from earnings releases and financial statements which can be obtained in the following pages:
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