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How Do Social Media Companies Make Money?

Social media stocks are off to a good start in 2015, with Facebook Inc. (Nasdaq: FB) still leading the group.

Facebook's stock is up 14% over the past year to around $80 a share, and FB now has nearly the same market cap as Wal-Mart (NYSE: WMT). Facebook has 1.31 billion active users. And it released a "revolutionary" marketing platform that will challenge the likes of Google Inc. (Nasdaq: GOOG, GOOGL).

But a question that must be clear to investors is exactly how do social media companies make money?

To learn how to gauge which companies will succeed, we first need to understand how social media advertising actually works...

GrubHub (NYSE: GRUB) Stock Surges After IPO; How It Can Keep Climbing

GrubHub Inc. (NYSE: GRUB) is the latest initial public offering (IPO) to take the market by storm in 2014, opening at $40 today (Friday), or 54% higher than its offer price. Through the IPO, the company raised $192 million, which easily beat previous projections.

The money raised in the IPO gives GRUB a valuation of approximately $2 billion.

Title: NYSE: GRUB - Description: NYSE: GRUBGrubHub priced its shares at $26 on Thursday, which was above its proposed range of $23 to $25 per share. The GrubHub IPO had been gaining momentum for weeks, as the company revised its range last week from an initial range of $20 to $22.

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