Webscale Playbook: Facebook

Webscale Playbook: Facebook
Renewed privacy, security and content concerns for its 2.4B user base drive network capex
By Arun Menon and Matt Walker

Description

This report is the sixth in MTN Consulting’s Webscale Playbook series, which analyze the “Super 8” webscale network operators (WNOs), i.e. Alibaba, Alphabet, Amazon, Apple, Baidu, Facebook, Microsoft, and Tencent. The objective of this report is to assess Facebook’s:

  • latest quarterly key performance indicators including revenues, capex, opex, R&D, etc.
  • key tech-related spending priorities
  • network vendor relationships, M&A, and partnerships across different network product categories
  • vendor market landscape
  • network-related strategy

Abstract

Facebook has grown through leaps and bounds since its inception 15 years ago, to currently become the world’s most popular social networking company with 2.3B monthly active users. When Facebook launched in February 2004, several other social networks such as Friendster (2002), MySpace (2003), and Orkut (Jan 2004) were already in the fray, triggering notions that Facebook would meet a similar fate as its peers – some of which are now defunct or are dying a slow death. Further uncertainties creeped in with its IPO going bust in 2012, reflecting doubts over its long-term worth. Fast-forward to 2019 and Facebook now has a market capitalization of over US$540B+, US$58.7B in annualized revenues at the end of 1Q19, and has become a force in advertising to reckon with, just after Google in the US.

However, it hasn’t been a fairytale journey all along for Facebook. The company continues to battle critics of the platform’s privacy policies and its treatment of misinformation/fake news. The social networking giant has been marred with privacy-related controversies in the recent years, including the Cambridge Analytica debacle for which Facebook’s CEO Mark Zuckerberg had to testify to US Congress. These controversies have impacted ad revenue growth in recent quarters, pushing Facebook to explore additional avenues around AR/VR, artificial intelligence, internet delivery initiatives, and cryptocurrency (dubbed ‘Libra’).

With initiatives such as connecting underserved markets with broadband services, along with its pursuits in AR/VR and cryptocurrency, comes the challenge of required network infrastructure and components. To ensure scalability and sustainability of its key platforms and initiatives in the medium-to-long run, Facebook is on an expansion spree of its data center properties and fiber-optic routes. Facebook’s capex has soared in recent times to reach a massive 25.4% of revenues in 1Q19, a level easily surpassing telco-like capital intensity of ~15%-18%. (The webscale average is under 9%)

Below are a few highlights from the report:

  • Facebook has been spending more on capex than R&D in the recent quarters as it builds more data centers across the US, Europe, and Asia-Pacific (Singapore) along with new fiber-optic routes in Africa and Americas
  • The company is designing and developing custom chips in partnership with silicon manufacturers to supplement its growing hardware and chip ambitions, both for usage in data centers and AR/VR hardware
  • Facebook’s top vendor Intel is feeling the heat as its pursuit of in-house chip development could reduce dependence on Intel

Format: PDF (PPT available upon request)

  • Table Of Contents
  • Figure & Charts

Table Of Contents

  1. Abstract
  2. Operational scale
  3. Latest earnings takeaways
  4. Revenue analysis
  5. Capex & R&D: Spend analysis
  6. Key spending priorities
  7. Key technology relationships
  8. Vendor market analysis
  9. Data center footprint
  10. Facebook’s network strategy
  11. Appendix 1
  12. Appendix 2

Figure & Charts

  1. Facebook Revenues: 4Q17 – 1Q19
  2. YoY Growth Rate (CAPEX vs. OPEX): 4Q17 – 1Q19
  3. Profitability Margins: 4Q17 – 1Q19
  4. Revenues (Annualized & Single Quarter), & YoY Growth
  5. FY2018 Revenue Split (MTN Consulting estimates*)
  6. Annualized Capex and R&D, % Revenues
  7. Facebook’s annualized share of WNO network & IT capex (MTN Consulting estimates*)
  8. Top vendors, all years: Facebook
  9. Contracts by product, Facebook: all years

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