What's Really Behind Facebook's Latest Success?

The social media giant reached new highs after its annual report -- not a bad way to celebrate your 10th birthday.

Feb 5, 2014 at 9:00PM

It's only February, but 2014 has already been a huge year for Facebook (NASDAQ:FB). Once the company that Wall Street loved to hate, the social media titan released its annual report on January 31, and the positive results immediately sent Facebook's stock price to new highs. All of this excitement is happening just as Facebook celebrates its tenth birthday, no less. Here's a closer look at exactly what is causing this company's solid performance.

10-K, good buddy
Facebook shakily meandered through the first half of last year, still not having quite recovered from its terrible 2012 IPO performance. Then in July 2013, the company's quarterly report finally proved Facebook's ability to monetize its operations within the mobile realm. After that, the business's price per share took off like a shot, capped off by the release of its 10-K for 2013, after which Facebook stock reached a new all-time high of over $60.

Such a sudden spike might have looked dramatic, but in Facebook's case, it might have been well-founded. By the end of the year, the amount of Facebook's daily active users (DAUs) had jumped 22% compared to the same time last year, reaching 757 million. That's more than twice the entire population of the United States, logging on at least once a day to check their mini-feeds.

Regarding mobile -- a segment Facebook investors have been watching like hawks -- the company increased its DAUs to 556 million by the end of the year, up 49% from the same time in 2012. Mobile advertising also accounted for 45% of the company's overall $6.9 billion in advertising sales, which makes up 88% of Facebook's overall revenue. This is a huge spike compared to 11% one year prior.

Advances in adverts
While mobile has been a hot topic for Facebook, what really caused the company's revenue growth to surge last year were tweaks to the way ads appear on its News Feed, for both mobile devices and PCs. Advertisements on the Feed reap higher engagement and financial results than any of the company's additional placements, and last year, Facebook did whatever it could to take advantage of that fact. The company boosted the number of ads it displayed on users' News Feeds by 20%, and the boost in that overall total helped the average price per ad go up by 36%.

Facebook also continued working to diversify its revenue streams last year. Sales from its "Payments and other fees" segment -- i.e., fees paid by developers to create apps, as well as users paying for gifts and games -- rose 9.3% compared to last year, coming in at $886 million. Developers might see additional incentive to hop on board the Facebook bandwagon within the next year as well; the company paid out over $2.1 billion to its developers in 2013, up from $1.96 billion in 2012. 

Finally gaining solid footing
After a year and three quarters as a public entity, the once-beleaguered Facebook now appears capable of putting its money where its mouth is. Wall Street seems more than eager to celebrate accordingly, but that doesn't necessarily mean Facebook's days of volatility as a stock are gone for good. It could take several quarters of positive earnings before the market completely gets past Facebook's IPO iniquities, but by upping the frequency of the company's ads, attracting developers with higher payments, and getting a solid foothold on mobile, the social media company certainly seems to be building enough momentum to accomplish that kind of continued success.

More compelling ideas from The Motley Fool
There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

Caroline Bennett has no position in any stocks mentioned. The Motley Fool recommends Facebook. The Motley Fool owns shares of Facebook. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information