As the curtains are drawn on 2013, we explore 5 social media and Internet-based stocks that did exceptionally well and gained more than 100.0% this year. Will they be able to keep their winning streak alive and continue to outperform the market in 2014? Let’s analyze their strengths, opportunities and weaknesses on the threshold of New Year.
After a disastrous initial public offering (IPO) in May 2012, Facebook’s (FB) shares rebounded sharply in 2013. The social networking giant’s rapidly growing user base and its mobile monetization efforts present significant growth opportunity. The new products, such as video ads, will further boost monetization.
According to market research firm eMarketer, this Zacks Rank #2 (Buy) stock is well-positioned to retain the #2 spot in the digital ad selling market in 2014 (with expected increase in market share to 8.2% from 7.4% in 2013), lagging none other than Google (GOOG).
However, Facebook’s U.S. mobile ad revenues market share is expected to dip in 2014 to 13.7% from an estimated 16.0% in 2013, due to increasing competition from Twitter (TWTR).
Despite Apple's (AAPL) launch of iTunes Radio in September, Pandora's (P) active listeners continued to increase in 2013. The company’s effective discovery engine, well established infrastructure and domestic & international expansion opportunities are the major growth drivers in 2014.
Much like Facebook, Pandora is hugely dependent on advertising revenues (88.0% of 2012 revenues). Hence, it faces significant competition for attracting ad dollars. According to eMarketer, this Zacks Rank #3 (Hold) stock’s revenue shares in U.S. mobile advertising market is expected to decrease from 5.5% in 2012 to an estimated 3.9% in 2013 and 3.5% in 2014.
Yelp’s (YELP) international expansion and increasing active business accounts will remain the key growth drivers in 2014. We believe that investments in sales & marketing and product development (to expand its platform in mobile applications) coupled with strategic acquisitions (SeatMe Inc.) are significant positives.
The expanding mobile platform will help this Zacks Rank #3 (Hold) stock to capitalize on the significant growth opportunity from higher ad spending, going forward. However, intensifying competition for attracting advertising revenues as well as lower average revenue per active local business will hurt profitability in 2014.
Management change in February has worked wonders for daily deal provider Groupon (GRPN), a Zacks Rank #3 (Hold) stock. We believe that the introduction of Freebies has been a major growth driver. The company plans to expand the offering to some key international markets in 2014.
However, unlike daily deals (revenues earned upfront), Groupon will earn revenues from coupons only if customers redeem them and purchase goods from the retailer. This may hurt top-line growth in 2014.
Zillow (Z), another Zacks Rank #3 (Hold) stock, offers mobile and web solutions that enable users to find important information about homes. We believe that the strong growth in mobile traffic, frequent new product launches and growing Premier Agent business are the positives for the company, going forward.
However, higher investment in marketing activities (television advertising spending) is expected to hurt profitability in 2014.
The table shows Year-to-date return of the 5 stocks:
|
As of Dec 26, 2013 |
||
|
Company |
Ticker |
Year-to-date Gain |
|
|
FB |
106.80% |
|
Pandora |
P |
202.42% |
|
Groupon |
GRPN |
141.73% |
|
Yelp |
YELP |
245.99% |
|
Zillow |
Z |
197.56% |
Conclusion
We believe that these 5 stocks will benefit from an improving U.S. macro environment, higher digital ad spending and continuing strong adoption of mobile and tablet devices in 2014.
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