LinkedIn: A Strong 'Buy' Candidate in 2012
Bobby is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
As human beings we have a built-in need to socialize. We form networks in order to exchange information with other like-minded people. The internet is a perfect tool for this. We no longer are limited to associating with those in our more immediate communities; now we can find others with similar interests all over the world. Similarly, online job board websites carry huge amounts of web traffic that bring together employers and job seekers. In this article, I will discuss how LinkedIn (NYSE: LNKD) is positioned for high growth and why I believe it will outperform many of its competitors. Specifically, I will compare and contrast the evolution of the way people have migrated from submitting resumes to companies to making job searching a more social experience. For example, the Christian Science Monitor claims LinkedIn has a silent, but financially deadly approach to blowing out the competition through its business model. The Christian Science Monitor believes LinkedIn is using the social media angle as a cover for its revolutionary search engine. I believe LinkedIn displays the characteristics of a sound investment.
LinkedIn currently trades at $91, more than double its initial public offering price (IPO) of $45. One may think there is no more room for growth. However, since LinkedIn is the third most popular social networking website, I believe there is still room for stratospheric growth. I base this primarily on the growth patterns of more established social media companies such as Facebook and Twitter. According to eBizMBA, Facebook and Twitter have unique monthly visitors totaling 750 million and 250 million, respectively. Both Facebook and Twitter are general social networks which cater to a wide variety of people from all walks of life. LinkedIn, on the other hand, specializes in networking for professionals. One might think it is too specialized, but I think this specialization can also lead to growth. LinkedIn has created its own niche in the market. Young people use social media for job hunting more so than other demographics. It can help the massively unemployed and underemployed youth market. For these reasons, I believe LinkedIn has tremendous potential to increase its viewer base - social media is connecting more employers with more job seekers. LinkedIn is positioned for growth because it already has the infrastructure to provide a meeting place for job seeker and employer. The social media aspect is the growing component and I believe LinkedIn has the right recipe for growth.
Based on my analysis, I believe Monster Worldwide (NYSE: MWW) has little upside potential when compared to LinkedIn. Financially, Monster.com is in terrible shape. At the time of writing, the stock price is trading at $9 per share. Based on its 52 week trading average of $6 to $18 and a price to earnings ratio of 21, one may think there could be a financial upside to this “cheap” stock. Looking at LinkedIn's future earning projections of $155 to $166 million for 2012, the stock is positioned to become much more profitable compared to 2011's profit of only $98.7 million. In comparison, Monster.com's earnings predictions are bleak for 2012. The company officers believe that earnings are going to fall between 5% to 10%. Moreover, even though the earnings per share (EPS) of $ 0.04 will be positive, it will only help the company break even.
Comparing Monster.com to LinkedIn on job search capabilities, LinkedIn is much more interactive and takes full advantage of social media. Monster offers an old-fashioned ‘help-wanted’ type of job site. In my opinion, Monster Worldwide offers its job searchers a 20th century job search service, while LinkedIn offers a 21st century version. My opinion is backed up because Monster.com offers no social media. The closest thing Monster.com offers to social media is a mobile application. This only enables mobile users to search for jobs on the website through antiquated resume submissions. Monster is unlike LinkedIn because it does not offer its users the ability to have an interactive resume or make connections with like-minded professionals. Monster.com's users are locked into searching for a job and hoping the employer responds. LinkedIn provides a completely opposite job searching experience. LinkedIn is almost entirely based on a social media job searching platform. It works naturally because we are social creatures and it intuitively follows our job seeking habits. For this reason, I believe that LinkedIn has a brighter and more profitable future than Monster.com. Since the future of job hunting is going to combine one's social media profile with job boards, I believe LinkedIn has a much better infrastructure for the future, when compared to Monster.com. Based on these reasons, I believe LinkedIn has a far greater chance of performing better than Monster.com and will be the star performer looking ahead. Now is the time to buy LinkedIn.
On top of this, LinkedIn has much greater exposure to emerging markets compared to Monster.com. More than half of LinkedIn’s membership comes from outside the Untied States, with key growth areas in Brazil and Mexico. As these countries continue to develop, LinkedIn offers an invaluable opportunity for would-be employees to post their résumés in hopes of getting a better job. Likewise, employers can now look beyond their immediate locales and even onto a worldwide market to seek the most professional staff available. Yes, this is just the beginning, but it is a great start for the company. LinkedIn is a true innovator in this regard, and I believe it will continue to grow in this untapped market. While Monster.com is continually expanding its international market reach, it is not reaching red hot emerging markets like LinkedIn is doing. Specifically, the company is working with a British pension firm to hire more help and expand its UK operations. While this is certainly an attempt to go beyond the United States, the United Kingdom might arguable be thought of as a weaker economy than the United States. This is likely not as conducive to growth compared to LinkedIn's expansion into red-hot emerging markets. Again, I think LinkedIn is a far better performer here, and would recommend buying shares today.
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