In many ways, 2013 was a pivotal year for the social media sector. Facebook (NASDAQ:FB) shares doubled after showing it could crush the mobile ad market, Twitter (NYSE:TWTR) went public and reignited the social media bubble conversation, and LinkedIn (NYSE:LNKD.DL) grew its membership base to more than a quarter of a billion professionals.
With such a momentous year now in the rearview mirror, it's time for social media investors to look forward to 2014.
1. Continued international expansion
Both Facebook and Twitter have continued to see the geographical composition of their respective use bases shift internationally. At the beginning of 2009, more than a third of Facebook's worldwide monthly active user, or MAU, base was within the U.S. and Canada. The same was true for Twitter in early 2010.
Today, 83% of Facebook's MAUs are international, and 77% of tweeters are outside of the U.S.
The challenge here is that it's much harder to monetize international users, and the key is to have a local presence to understand cultural and geographical differences between markets. On top of that, smaller local competitors may command more brand recognition.
2. Content is still king
There has been a renewed emphasis on gravitating toward quality content. This can take several forms.
Facebook has rallied behind the idea that higher-quality content is more engaging, and thus will support its advertising business better. Instead of seeing News Feeds populated with doge memes and cat gifs, Facebook wants users to see quality content and articles. But what if Facebook users prefer the former over the latter?
This will be an important challenge that the social network must address as it matures as a business and as Mark Zuckerberg matures as an executive. That's particularly true since aforementioned memes and other types of viral content are precisely what people like to share.
Facebook constantly tweaks its News Feed algorithms. Much like how Google doing likewise with its search algorithms can dramatically affect third-party businesses, the same is true of Facebook as a growing content distribution platform.
LinkedIn made its content aspirations quite clear when it acquired Pulse last year for $90 million, the popular news reading start-up. Seven months later, LinkedIn would integrate Pulse into its site, replacing LinkedIn Today as its new content platform. Ad sales have historically been a relatively smaller chunk of revenue, but the marketing segment brought in $88.5 million in revenue last quarter, thanks in part to the focus on content.
3. Mobile still matters -- a lot
A year ago, Zuckerberg said, "Today, there's no argument. Facebook is a mobile company." Look no further than Facebook's user base for proof. Mobile usage of the service has soared, and now three out of four users accesses the site from a mobile device.
At the time, mobile was 23% of ad revenue ($300 million absolute dollars), but the storyline was clearly already shifting away from the mobile pessimism that plagued the social network in 2012. Facebook's mobile ad business has now risen to 49% of ad sales, or nearly $900 million in revenue last quarter.
It's not an exaggeration to say that mobile advertising is as important as it's ever been. Mobile ads are expected to be a key contributor to growth in the global advertising market, generating a third of the $90 billion in incremental revenue gains by 2016.
With social media having quite a meaningful overlap with mobile trends, this shouldn't come as a shocker to anyone.
4. Where are teens going?
As teens are among the most social of demographic groups, social media investors pay a lot of attention to which platform they prefer. By now, you've already heard of teen preferences shifting from Facebook to Twitter. What's less clear is how negatively that may affect Facebook's fundamental business.
Even LinkedIn is now trying to target teenagers, recently opening up the service to high school students over 13 years old. As the differentiated professional player here, LinkedIn wants to get students onto its professional platform early.
More recently, Snapchat has taken off in popularity among teens, which is one reason why Facebook tried to acquire it for $3 billion in the first place. They've also taken to Twitter's Vine, sparking Facebook's response of Instagram Video. Instead of using Facebook Messenger, teens are also starting to flock to WeChat.
Short-term social trends might not be harmful, but there could be cause for concern if they prove to be long-term behavioral shifts. However, a social media company's resilience to these user outflows will always be commensurate with its network effects. In this sense, Facebook has more defense relative to its peers since it simply has the largest social network known to man. Still, investors should watch where the teens go in 2014.
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Evan Niu, CFA owns shares of LinkedIn. The Motley Fool recommends Twitter. It recommends and owns shares of Facebook, Google, and LinkedIn. 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.