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Facebook: Facebook is digging its moat deeper – only now it’s doing so on autopilot. The social networking firm has said before its operations throw off more cash than they consume. So news that operating profits also more than cover capital expenditures doesn’t surprise — until you realise the company added another 50m users over the past 3 months. This self-financed infrastructure build-out is significant.
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The closely held firm is being parsimonious with details. But such growth requires lots of everything from servers to optic fibre to real estate. Such investment is extremely expensive, especially since it is being done post-haste. Read narrowly, this means the company’s profits must be growing quickly if it can now cover these expenses.
There’s a more important point though. Throw in the fact that Facebook"s user universe at 300m strong is already almost as large as the US itself, and it"s becoming increasingly clear this endeavour is nearly impossible to replicate. The financial costs would be huge — and they are growing as more people join its network. How quickly Facebook can reap monopoly profits is now the relevant question.