LinkedIn has 175 million members and growing
LinkedIn Corporation (ticker: LNKD) offers a network that is similar to Facebook but focuses on the professional markets, nationally and globally. The company is thriving as THE go to alternate network for professional contacts. Millions of Facebook users also have LinkedIn accounts so on the surface, LinkedIn is not a competitor to Facebook, but instead caters to an extremely valuable niche market. The company has more than 175 million members. Almost 62% of their membership comes from international markets.
On a per member basis, Facebook dominates the social networking scene. If you exclude the ’80 plus million Facebook duplicate accounts’, the Facebook family is four to five time larger than that of LinkedIn’s. However, from a revenue growth and profit standpoint, LinkedIn is social media – done right. LinkedIn is clearly the global leader in professional social networks.
Revenue improved 89% year over year, however net income declined relative to the year-ago quarter (in my opinion, this will be a number to keep an eye on going forward). Each of LinkedIn’s three platforms demonstrated impressive top-line growth. One of those revenue platforms is beginning to dominate.
Platform Q2 Revenue Year-over-Year Growth Percent of Total
Hiring Solutions $121.6 million 107% 53%
Marketing Solutions $ 63.1 million 64% 32%
Premium Subscriptions $ 43.5 million 82% 20%
As noted, over half of the company’s sales come from its “hiring solutions” platform. The company packages information and sends it off to recruiters that are using LinkedIn as their main source for identifying talent.
In 2008, Monster Worldwide realized $1.3 billion in revenues through a similar model. LinkedIn has the potential to meet if not beat the Monster number. The company has over 10,400 large “enterprise” accounts, of which the average account spent about $28,000 last year. It stands to reason as recruiters continue to forge alliances with LinkedIn and its best-in-the-industry data, this number will also continue to rise. It’s also important to note that LinkedIn is not just adding new accounts; it’s capturing a greater share of the job recruiting dollars from existing accounts.
In my opinion, the opportunity for LinkedIn is ginormous. LinkedIn has the potential to continue to expand its professional site at a faster rate than Facebook. The potential revenue pie is also massive. LinkedIn estimates its addressable market at about $27 billion. Last year the company captured a fractional $522 million slice. This year the company should walk away with a much larger slice. The good news is that there are a lot more slices left waiting to land on the LinkedIn platter.
Unfortunately for LNKD shareholders, the pricing (in my opinion) got caught up in all the negativity surrounding the Zynga snafu and Facebook earnings. After tagging $ 107.72 on July 30th, the shares got hammered to $ 91.67 on August 2nd. Oh yee of little faith.
As it turns out, that was an awesome buying opportunity since LNKD rocketed to $ 113.00 (a gain of over 23%) by August 6th. It’s my opinion that had there not been the selloff ahead of earnings, LinkedIn would have tagged the $120 a share after the earnings call. I still believe the company is a much sounder company than it was the first time the stock hit $120. For those itching to get into a social media stock, LNKD should not be ignored.
LNKD has a habit of gapping higher then coming back down and filling in those gaps. For LNKD to fill this latest gap would mean a move back down to the $97.50 level. Trend line support as of this writing is $ 92.17. I want to stress the point that LinkedIn is considered a hyper growth stock and is NOT for the faint of heart. The valuation algorithm I use values LNKD at $17.95 per share. Therefore, it is extremely overvalued compared to its price of $104.92 per share. Value is computed from forecasted earnings per share, forecasted earnings growth, profitability, interest, and inflation rates. Value increases when earnings, earnings growth rate and profitability increase, and when interest and inflation rates decrease. Any miss at all during an earnings call or a possible future slowdown in growth would (in my opinion) crush the shares.
For disclosure purposes I am considering re-entering a long position in LNKD should the shares revisit the $92.17 to $97.50 area.
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