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FB Stock: What's Behind Facebook's Near 3X Profit Growth?

Facebook Inc reported 278% growth in its net profit in 2016. What are the factors behind such strong growth?

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In spite of the continued controversy around "Fake News" and content filtering, shares of Menlo Park, California, based Facebook Inc (NASDAQ:FB) have continued their strong bullish trend. Shares of the social networking giant have gained around 20% YTD. While the strong overall bullish trend provided a strong support to FB stock, in large part, the bullish rally was a result of Facebook's strong revenue growth and higher profits. Facebook Inc reported 54% growth in revenues and an astounding 278% growth in its net profit in 2016. So what are the factors driving Facebook's profit growth?

Decoding strong growth in Facebook Inc's profits.

2016 was a particularly strong year for Facebook Inc in terms of profit growth. Net profit increased from $3.69 billion in 2015 to $10.22 billion in 2016, an astounding 278% YoY growth. For comparison, the social media company had reported 25% net profit growth in 2015. The strong growth in profits was a result of both, growing revenues and margin expansion. The 54% growth in revenues was one of the main factors behind the increase in profits. The growth in revenue would have translated to around $2 billion in additional profits if net margin would have remained at last year's level of 20%.

Slow down in share-based compensation growth.

On the expenses front, while there was an increase in absolute terms, a 'common statement' analysis shows that expenses growth was much slower. Facebook's cost and expenses made up 45% of revenues in 2016 compared to 55% last year. The 10% relative compression in expenses contributed another $2.7 billion to Facebook's bottom...


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