Facebook’s financial results, revealed yesterday in the company’s IPO filing, showed 2011 profits of $1 billion from sales of more $3.7 billion — translating into a strong 27 percent profit margin. It’s a key ratio to watch because it reflects a company’s efficiency as a business and an investment.
By comparison, Google’s 2011 profit margin was 26 percent, Microsoft’s profit margin was 33 percent in its 2011 fiscal year (ended in June) and Apple’s profit margin was 24 percent for its 2011 fiscal year (ended in September). Amazon.com’s profit margin was a slim 1.3 percent for the year.
Amazon is an outlier in this case, given the traditionally paper-thin margins of the retail business — even though the Seattle company may come under more pressure to boost its margins as it competes with the likes of Apple in the hardware business.
The comparison between Facebook and Google makes more sense, considering that they both make the bulk of their money from online advertising.
Microsoft these days a mixed bag of PC and server software, online services and hardware. But the Windows business, specifically, is renowned for its gigantic profit margins. So even though Facebook and Windows aren’t really comparable as businesses — one makes money from ads, the other from software licensing — it’s an interesting exercise to compare the flagship product of the PC era with the central service of the social networking era.
In other words, if you had $1,000 to invest, would you give it to Facebook CEO Mark Zuckerberg or to Windows President Steven Sinofsky?
For now, at least, Windows still rules on this metric. Operating profit margin in the Windows and Windows Live Division was 65 percent in Microsoft’s 2011 fiscal year, compared with a 47 percent operating profit margin for Facebook.
But particularly given the trends on the Windows side, this should be an interesting comparison to make again in a couple years.