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What's Really Behind Facebook's Latest Success?

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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.

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Caroline Bennett

Caroline wants to help make the seemingly esoteric concept of investing accessible to everyone... and write a few puns along the way.

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