Please ensure Javascript is enabled for purposes of website accessibility

Facebook Expects Capital Spending to Soar at Least 55% in 2017

By Evan Niu, CFA – Updated Feb 9, 2017 at 6:18PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The social network needs more data centers.

Perhaps the market is learning its lesson.

In late 2014, Facebook (META 0.07%) shares fell after the company warned that 2015 would see a significant increase in total costs. At the time, operating expenses were expected to jump 55% to 75% from 2014 levels, and investors were none too happy with the prediction. In fairness, a decent chunk of that increase was attributable to the WhatsApp deal that had just closed (a deal I'm still skeptical about, even years later). But shares proceeded to recover and march ever higher.

The same thing happened two years later, nearly to the day. Shares have already recovered and sit at all-time highs. The social network just filed its 10-K alongside fourth-quarter earnings, and one of the more notable data points buried within the annual report is this: "We anticipate making capital expenditures in 2017 of approximately $7.0 billion to $7.5 billion."

Hey, big spender

At the low end, that would represent a 55% increase from the $4.5 billion that Facebook spent on capital expenditures in 2016. If capital spending comes in at the high end of that guidance, it would be a 67% jump. While the 55% figure sounds eerily familiar to the 2014 episode, note that in 2014 Facebook was referring to total operating expenses, and we're only talking about capital expenditures right now.

For reference, last year's $4.5 billion was right at the top of its expected range. Historically, Facebook's capital spending has come in below its forecasts.

Year

Guidance

Actual

2013

$1.8 billion

$1.4 billion

2014

$2 billion to $2.5 billion

$1.8 billion

2015

$2.8 billion to $3.2 billion

$2.5 billion

2016

$4 billion to $4.5 billion

$4.5 billion

2017

$7 billion to $7.5 billion

TBD

Data source: 10-K Annual Reports. TBD = to be determined.

Some of this spending pays for office buildings, but the majority of these investments go toward data centers, servers, and network infrastructure. Facebook's infrastructure needs continue to increase as its global user base continues to grow all around the world, requiring local data centers. On top of that, Facebook has been betting big -- and continues to invest accordingly -- on video.

Facebook data center in Lulea, Sweden

Facebook data center in Lulea, Sweden. Image source: Facebook.

Facebook announced in September that it would be constructing its seventh data center in Los Lunas, New Mexico. Most of Facebook's data centers are located domestically: Oregon, North Carolina, Iowa, Texas, and soon New Mexico. The company still has some work to do with expanding its infrastructure internationally, as only two data centers are located abroad (in Sweden and Ireland).

Considering how quickly shares recovered from the November drop, which was exacerbated by a few other negative storylines, investors are presumably starting to get the bigger picture.

Evan Niu, CFA owns shares of Facebook. The Motley Fool owns shares of and recommends Facebook. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Meta Platforms, Inc. Stock Quote
Meta Platforms, Inc.
META
$139.07 (0.07%) $0.09

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
339%
 
S&P 500 Returns
109%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/07/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.