Why Facebook Inc. Stock Has Soared 42% in 2014

For more than a full year after its botched 2012 IPO, Facebook (META -0.52%) looked like it might become the poster child for a bubble in social-media stocks. Yet, since mid-2013, the stock has shot through the roof, as Facebook has become one of the most successful tech companies to make the transition from desktop-Internet-based success to the mobile platform.

The question investors are asking is whether they should treat the stock's triple in just 15 months as a gift, and sell, or hold on in hopes of even larger gains in the future. Let's take a closer look at Facebook to examine why the stock has soared in 2014, and if shareholders can expect further upward movement in the stock.

Stats on Facebook

Source: Yahoo! Finance.

Why did Facebook go from zero to hero?
The biggest catalyst for Facebook's turnaround from a sour post-IPO decline is its demonstrated ability to tap into the key trend from desktop to mobile applications. In its most recent earnings report back in July, Facebook once again dazzled shareholders with evidence that the social-media giant has solved the mobile puzzle, with overall revenue climbing 61% from year-ago levels, driven largely by soaring sales of mobile ads.

Ad revenue from the mobile side climbed 143%, and earnings per share more than doubled from the previous year. Even as user counts moved well past the 1 billion mark, growth has continued, with the most recent tally rising 14% from a year ago, to 1.32 billion. Regular use has also climbed along with the broader-based customer numbers, with a 19% gain in users who use the service daily.

In addition, Facebook has continually demonstrated that its members are more willing to share their thoughts than those of other social-media outlets. That creates exactly the positive network effects that investors want to see, as popular publishers, who have found success on Facebook, make sure that they keep producing content for Facebook's members, closing the loop, and giving Facebook the opportunity to act as a content aggregator to add value and quality for its members.

Source: Facebook.

For future growth, Facebook hopes it will expand its international reach. As user counts reach the saturation point in many developed markets, Facebook has targeted Africa as a potential hotbed for growth, having crossed the 100 million mark in African monthly active users.

With the company claiming that the continent has more mobile users than the U.S. and Europe, Facebook hopes that faster-growing economies, and a population dominated by younger demographics, will help provide a boost to its overall business. The acquisition of WhatsApp jived well with Facebook's African strategy, as the service dominated Africa even before Facebook bought it.

In addition, Facebook has followed Google's (GOOG 0.74%) (GOOGL 0.55%) lead by acquiring companies well beyond its core business. Its purchase of virtual reality device producer Oculus could give Facebook even more proprietary ways to show users the value of its mobile offerings. It could, however, also spur further innovation beyond Facebook's social-media core to help give the company some diversification if the social-media trend sees its popularity wane.

What threats does Facebook face?
Of course, Facebook isn't operating in a vacuum. So far, it has done a good job of holding off Twitter (TWTR) and other social-media peers. But Facebook's success using targeted algorithmic content feeds has inspired Twitter to look to follow suit, and investors can count on other upstart social-media competitors to pay close attention to Facebook's strongest areas so they can mimic the company.

Moreover, more seasoned tech companies aren't giving Facebook an undisputed victory in building the ideal network. Apple (AAPL 1.27%), Google, Amazon (AMZN -1.64%), and other companies are all focusing on building ecosystems that will lure users in, and keep them within their environments for as long as possible, and they've had varying degrees of success in doing so.

Connecting Facebook to the future
Despite its huge run higher, Facebook still has plenty of fuel to drive its stock further upward. As long as users remain interested in what Facebook has to offer, the company will have the potential to further enhance its positive network effect, and produce even larger long-term gains for patient shareholders.