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Facebook, Twitter, Snap and Pinterest Margins Comparison

People. Source: Flickr

This article looks at and compares the margins of social media companies, including Facebook, Twitter, Snap 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 Facebook, Twitter, Snap and Pinterest.

Let’s get to it!

Social Media Companies Margin Topics

1. Gross Margin
2. Operating Margin
3. Net Profit Margin
4. EBITDA margin
5. Conclusion

Gross Margin

Facebook, Twitter, Snap and Pinterest's gross margin comparison

Facebook, Twitter, Snap and Pinterest’s gross margin comparison

* Gross margin is a measurement determined in accordance with GAAP and is obtained from the companies’ respective income statements.
* Gross margin is calculated based on the ratio of gross income with respect to revenue.
* All companies’ fiscal year begins on Jan 1 and ends on Dec 31.

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 mark-up 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, Facebook 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 5 years, Facebook’s gross margin averaged more than 80% and clocked in at slightly over 80% as of fiscal 2020.

While Facebook 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 2020 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 2020, Snap’s gross margin reached 53%, a year-on-year increase of 5 ppt.

Similarly, Pinterest’s gross margin has also been on a tear, reaching as much as 73.5% as of fiscal 2020, second only to Facebook.

Twitter’s gross margin has remained flat in the last 5 years and totaled 63% as of fiscal 2020.

In short, Facebook is clocking in at the best gross margin at 80%, way ahead of Twitter, Snap and Pinterest.

Operating Margin

Facebook, Twitter, Snap and Pinterest's operating margin comparison

Facebook, Twitter, Snap and Pinterest’s operating margin comparison

* Operating margin is a measurement determined in accordance with GAAP and is obtained from the companies’ respective income statements.
* Operating margin is calculated based on the ratio of operating income with respect to revenue.
* Negative figures are capped at -100% so that the chart does not go out of proportion.
* All companies’ fiscal year begins on Jan 1 and ends on Dec 31.

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, Facebook and Twitter’s operating margins are positive in nearly all fiscal years.

Facebook is doing particularly well with its operating margin averaging more than 30% in the last 5 years.

As of fiscal 2020, Facebook’s operating margin clocked in at 38% while Twitter reported an operating margin of only 0.7% in the same fiscal year.

While most social media companies have positive gross margins, their operating margins declined considerably after adjusting for the respective operating expenses.

The negative margins show that social media companies like Snap and Pinterest have had enormous operating expenses that their gross profits have been insufficient to cover.

Operating expenses including stock-based compensation expenses, R&D costs, SGA, marketing expenses, etc. have been the most common among social media companies.

While both Snap and Pinterest had incurred huge operating losses in the past, their operating margins were seen narrowing significantly as of fiscal 2020, clocking in at -34% and -8%, respectively.

Again, Facebook wins hands-down in terms of operating margin with respect to Twitter, Pinterest and Snap.

Net Profit Margin

Facebook, Twitter, Snap and Pinterest's net profit margin comparison

Facebook, Twitter, Snap and Pinterest’s net profit margin comparison

* Net profit margin is a measurement determined in accordance with GAAP and is obtained from the companies’ respective income statements.
* Net profit margin is calculated based on the ratio of net profit with respect to revenue.
* Negative figures are capped at -100% so that the chart does not go out of proportion.
* All companies’ fiscal year begins on Jan 1 and ends on Dec 31.

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, are having net profit margins located in the negative region of the chart, showing that most of them have been having net losses all these years.

However, Facebook and Twitter seem to be the only 2 companies with positive net profit margins.

For Twitter, the company is seen incurring net losses in several fiscal years and reported a net profit margin of -30.6% as of fiscal 2020.

Therefore, Twitter also has been inconsistent when it comes to producing net profits.

Facebook seems like the only social company that has been consistently producing net profits since fiscal 2016.

On average, Facebook’s net profit margin clocked in at about 30% in the last 5 years and totaled as much as 34% as of fiscal 2020.

At this level of net profit margin, Facebook is making an enormous amount of profit that no other social media companies, including Twitter, Pinterest and Snap, can match.

Again, Facebook leaves other social media companies in the dust when it comes to profitability.

On a side note, while Snap and Pinterest have had negative net margins, their figures have narrowed significantly over the years and clocked in at -38% and -8%, respectively, as of fiscal 2020, a far better result compared to prior years.

EBITDA Margin

Twitter, Snap and Pinterest's EBITDA margin comparison

Twitter, Snap and Pinterest’s EBITDA margin comparison

* EBITDA margin is a measurement determined NOT in accordance with GAAP and is obtained from the companies’ respective financial statements.
* EBITDA margin is calculated based on the ratio of EBITDA with respect to revenue.
* Negative figures are capped at -100% so that the chart does not go out of proportion.
* All companies’ fiscal year begins on Jan 1 and ends on Dec 31.

EBITDA stands for earnings before interest, taxes, depreciation and amortization.

EBITDA is cash earnings that come without the 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, 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, Facebook is the only one that does not provide an EBITDA figure.

Nevertheless, we can still go ahead to compare the 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 may have its own way of computing the EBITDA despite operating in the same industry.

That said, according to the chart above, Twitter’s EBITDA margin has been flat over the last 5 years and reported an EBITDA margin of 27% in fiscal 2020, an 8ppt decline compared to the prior year.

While Twitter’s EBITDA margins have been on a decline, they have been in much better shape than that of Snap and Pinterest.

Looking at Snap and Pinterest’s EBITDA margins, the numbers clocked in at 1.8% and 18%, respectively, in fiscal 2020, a far better figure compared to the one in the prior year.

A significant improvement seen is that Snap and Pinterest’s negative EBITDA has been narrowing since fiscal 2016 and has finally turned positive as of fiscal 2020, suggesting that their respective core performances have significantly improved over the years.

The rising trend of Snap and Pinterest’s EBITDA is a good indicator that most investors want to see.

Despite reporting a positive EBITDA as of fiscal 2020, Snap and Pinterest have much work to do as their results are still way behind that of Twitter.

Conclusion

In short, Facebook is the king of profitability when it comes to margins comparison among social media companies, including Pinterest, Snap and Twitter.

Facebook beats Twitter, Pinterest and Snap by a very wide margin in all comparisons, including gross margins, operating margins and net profit margins.

Therefore, Facebook is the most profitable social media company as of fiscal 2020, far ahead of Twitter, Pinterest and Snap.

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 recorded the best margins expansion in fiscal 2020 compared to Facebook and Twitter.

Additionally, both Pinterest and Snap have recorded the best EBITDA margin growth in fiscal 2020, meaning that their respective core performances have significantly improved.

References and Credits

1. Financial figures for all companies discussed above were obtained and referenced from their respective financial statements which can be obtained from the following links:

a) Facebook Investor Relations
b) Pinterest Investor Relations
c) Twitter Investor Relations
d) Snap Investor Relations

2. Featured images in this article are used under creative commons license and sourced from the following websites: Alexandre Formagio and Eric Montfort.

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