Facebook has become one of the biggest spenders in terms of capital expenditures. It has been less than five years since the company went public, and it is already making a mark by becoming one of the top-most in terms of capital expenditures, reports Bloomberg.
Capex rising fast for Facebook
The three companies that spend the most on web and cloud services are Alphabet, Amazon and Microsoft. The three companies together have burned more than $20 billion in cash each year to buy computer equipment and operate the digital data centers that are the lifeblood of the Internet. Though Facebook’s spending is less than other internet and cloud computing giants, it is growing sharply.
Facebook has stated that its capital expenditure could inflate to $4.5 billion this year, an increase of 78% from 2015. According to executives, the social networking giant is spending the most on data centers with some new ones coming up in the United States and Ireland. Next year could be an “aggressive investment year,” including on capital expenditures, feels CFO David Wehner.
Facebook shares dipped on Thursday following the news of big capital expenses coming up and the expected slowdown in the revenue growth rate. If in 2016, Facebook’s spending goes in line with guidance and outlays surge 78% as expected, then capex in 2017 could surge about $8 billion, notes Bloomberg.
This figure is nearly the same as what Microsoft spent on its data centers, computer equipment, and the like in the recent year when it posted revenue of $85 billion. Facebook is expected to post revenue of $36.7 billion.
Spending spree depends on revenue growth
Facebook executives are confident about their expertise in enhancing efficiency. Servers, Internet network pipes and data center buildings are indigenously produced at Facebook to maximize the digital performance at as low a cost as possible. And not only this, but the company also removed the logos from its servers so that air can pass uninterrupted to lower the temperature of the big machines, notes Bloomberg.
However, when it comes to capital spending, the company lacks efficiency somewhere, says Bloomberg. In the last nine months, capex was 17% of total revenue in the same period. Alphabet spends 11% of gross revenue as capital expenditures. Google has been showing some discipline in its spending since the new financial chief has put greater control in place. However, Facebook is fueling its capex, and the areas in which the company is spending will closely be tracked by investors.
Facebook’s spending spree will depend on its revenue growth rate. If the revenue growth rate slows down, then the social networking company will have to contain its capex too.