The world is still grappling with social media as a concept. On one end, it's a savvy networking tool that can boost professional leverage and create important connections. On the other, it's a place where people from all over the world can post inane "think pieces" and photos of their babies and pets. Whatever its use, in 2013, the social media industry had an undeniable impact on Wall Street, and among three of its biggest movers, one company in particular has uniquely prepared itself for whatever the market throws its way.
Over 1 billion MAUs can't be wrong
If there is any company that knows what it's like to be put through the stock market ringer, it's Facebook (NASDAQ:FB). In 2012, after an IPO debacle that will live in infamy, the social media giant struggled just to try and regain its initial share price of $38. For the first part of 2013, Facebook's stock price continued to have difficulty keeping its head above water, but by Q2, everything changed.
The company had seen solid revenue results in its first quarter, posting $1.46 billion in overall sales (a 38% year-over-year increase) and reaching a staggering 1.11 billion in monthly active users (or MAUs), but 2013's second quarter took these stats even higher. Quarterly revenue was up to $1.8 billion while MAUs swelled to 1.15 billion. One reason for the financial success is that Facebook seems to have finally gotten a grip on monetizing its mobile branch. During the second quarter, MAUs for mobile jumped 51% year-over-year, and mobile also made up 41% of Facebook's advertising revenue, and by Q3 of 2013, that percentage grew to 49%.
Facebook stock jumped from $26.13 to $34.35 within a day of its Q2 earnings release, and thanks to continuing expansions within its crucial mobile metrics, that growth has continued throughout the year -- on Christmas Eve, the company's share price reached a new all-time high of $57.96. Still, 2014 could present challenges -- investors are concerned about whether Facebook can keep this growth going in mobile while its younger demographics are beginning to dwindle. The market has already been burned once by Facebook, and would be loath to see that happen again.
A year worth tweeting
Determined not to replicate Facebook's disastrous entrance into the public market, micro-blogging site Twitter (NYSE:TWTR) took some headline-making action when the time came for its 2013 IPO. Besides listing itself on the New York Stock Exchange as opposed to Nasdaq (Facebook's pick), Twitter made use of going public confidentially, a new option provided by the JOBS Act, created for businesses bringing in less than $1 billion in annual revenue. Perhaps contradictorily, the company wasted no time in tweeting about that event as soon as possible.
When Twitter eventually went public in November, the market reacted much more kindly than in the case of Facebook. The stock debuted at $26, shot up to $44.90 within its first day, and weathered the first month as a public entity fairly smoothly, dipping to $39.06 per share at its lowest and quickly rebounding. Its second month saw more dramatic highs -- on Dec. 26 the company was trading at $73.31, 72% higher than its initial price.
All that said, avoiding an IPO pitfall doesn't necessarily mean that 2014 will be free of trouble for Twitter. The company has admitted the vast majority of its money comes from advertising, which includes sponsored tweets. Consisting almost entirely on one stream of revenue isn't an ideal situation for investors, especially as fellow social media peers like Facebook and LinkedIn (NYSE:LNKD) have split apart their sources for sales by offering premium profiles as well as charging fees to developers. For some investors, Twitter's sizable base of engaged users is enough to outweigh its simple business model, and many advertisers are hopping on that belief as well. However, should those numbers drop for any reason, look out- the company's valuation and stock could quickly plummet as a result.
Professional social media
Perhaps the most dependable of all the social media stocks on the market has been LinkedIn. The corporate answer to Facebook certainly has had its share of ups and downs in stock price, but its solid business model keeps investors staying calm and grounded, even when things get a little rocky.
In 2013, LinkedIn's stock price grew an overall 87%, despite running into a few roadblocks along the way. Following its Q1 report in May, the company's share price took a quick 12.9% drop. Even though revenue was up 72% compared to the prior year's report, LinkedIn's overall outlook wasn't up to analysts' liking -- a Thomson Reuters' consensus estimate explained they expected $359 million in revenue, while LinkedIn's predictions were between $342 and $347 million .
LinkedIn weathered that blow and then some by the next quarter -- after reaching a low point of $162.46 per share in June, the company's second quarter showed continued growth. Quarterly revenue was up to $363.7 million and LinkedIn boosted its outlook for annual revenue from $1.43-$1.46 billion to $1.45 to $1.475 billion. Even though the stock price took a tumble after its Q3 call -- which revealed another less-than-ideal revenue outlook for analysts -- LinkedIn still managed to end out the year trading at well over $200 per share.
More than perhaps any of the rest of its competition, LinkedIn has solidly diversified the way it generates revenue. The bulk of sales come from the Talent Solutions segment, focusing on the search process between applicants and employers. That branch made up between 56 and 57% of revenue during each quarter in 2013, while the rest was held up by Marketing Solutions and Premium Subscriptions, making up 23-24% and 20% of sales respectively.
Having three healthy channels for revenue helps LinkedIn investors sigh in relief -- should one segment happen to have an off-quarter, the other two can help make up the difference, as opposed to Twitter, which will have a lot of explaining to do should its advertising dollars come up short.
Crème de media
Social media was a hot button topic this year, but some of the more buzz-worthy companies within the industry have yet to develop much of a business model to stand on. By contrast, LinkedIn has a multi-pronged approach to revenue that provides a buffer against the market's spontaneous mood swings. While Facebook continues to expand its own revenue channels, most of its sales are still driven by advertising (even if those dollars are gaining more of a mobile focus). As an industry in general, social media may not be the ideal place for highly risk-averse investors to put their money, but LinkedIn has managed to distance itself a bit from that volatility.