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Facebook should be the core holding for tech investors

John Shinal
Special for USA TODAY

Facebook's (FB) second-quarter financial results show why its shares should be among the one or two technology issues in every growth investor's portfolio.

A sign at Facebook headquarters in Menlo Park, Calif.

The No. 1 social network's year-over-year revenue growth accelerated in the latest period to 59%, up from 52% in the first quarter.

Facebook is boosting sales two-to-three times faster than Alphabet (GOOGL) and Twitter (TWTR), indicating it's taking market share from rivals in its primary business of digital advertising.

It's also growing twice as fast as Amazon (AMZN), which is expected to post 28% growth when it releases results late Thursday.

True, Amazon and Google are both growing off a much larger base, but Facebook is expanding its already-fatter profit margins faster than either the online retailing giant or the Internet search leader.

Facebook's operating income more than doubled year-over-year in the June quarter, earning it a hefty operating margin of 43% of revenue. Meanwhile, Alphabet reported a 26% margin in its first quarter, while Amazon operates on a razor-thin margin of just under 4%.

Both tech giants report late Thursday. Alphabet and Amazon are more profitable on an absolute basis, by earning more per share. That's partly a function of how much equity Facebook CEO Mark Zuckerberg has dispensed to investors and employees (including himself.)

Yet Facebook's net income nearly tripled in its most recent period, from a year earlier, so it's making up ground fast.

As we advised readers earlier this year, Alphabet, Amazon and Facebook are the three best tech growth stocks to own for 2016.

But if you had to pick just one, Facebook's latest financials show it's accelerating growth and  boosting its profitability.

That should make it the core holding for tech investors this year.

John Shinal has covered tech and financial markets for more than 15 years at Bloomberg, BusinessWeek,The San Francisco Chronicle, Dow Jones MarketWatch, Wall Street Journal Digital Network and others. Follow him on Twitter: @johnshinal.

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