LinkedIn - Time to Move

Cecil is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Some people think that social media has already peaked, as these days most people seem to have replaced reading a newspaper with their Twitter-feed. There’s definitely going to be growth to the number of users that most social networking sites have. Perhaps the two biggest (and public) companies that are best positioned to take advantage of this growth are Facebook (NASDAQ: FB)and LinkedIn (NYSE: LNKD).

LinkedIn is a networking site that seems to have completely changed the way professional networking works. You can get recommended for a job on it, meet new people in the industry, you name it. The beauty about LinkedIn is the fact that it has got multiple revenue streams and isn’t dependent on advertising alone. The service has premium accounts for which you have to pay, unlike Facebook, where all accounts are currently free. The company reported earnings of $0.22 per share on revenue of $252 million, beating average expectations of $0.11 per share on revenue of $244 million.

LinkedIn in the recent past has been trying to get its users to visit daily, so as to improve on the data they have available on their users. This will help attract more advertisers for the company. Last month, it rolled out a new feature that lets users follow select industry leaders — handpicked by the company — who post original content to the site. It also revamped its home, news, and profile pages, and added a notifications bar for new content. Later in the month, it launched a video advertising platform in order to bump up its ad revenue, allowing advertisers to use their YouTube or other videos to promote brands.

A company that will take a hit thanks to the succes of LinkedIn is Monster World Wide (NYSE: MWW)The company is losing ground to LinkedIn, which offers a lot more services to its users than simply a forum to post vacancy ads. Monster recently announced restructuring so that it could focus on its core business and set right its costs in order to boost profitability. The restructuring actions include the sale of the ChinaHR business and classifying the revenues from the same as discontinued operations.

Monster also intends to curtail losses in developing markets. The company also aims to continue and accelerate the redeployment of expenses into marketing and sales in Monster’s core markets, while reducing the run rate of operating expenses. The combined effect of all of these changes is expected to save the company nearly $130 million per annum. The restructuring and tightening of operations is a fairly clear indicator that the company is facing challenges from outside, most notably in the form of LinkedIn.

Facebook, a company that’s at the other end of the spectrum when it comes to the kind of service that it provides, is the inevitable comparison for LinkedIn. Facebook’s stock has seen some of its recent drops as the company unlocks shares for trading, and insiders and early investors begin cashing out on their holdings. The company, which lost nearly $40 billion since its IPO in May, has recently reworked its advertising models, and that seems to be paying off.

Facebook has introduced seven advertisement features created for smartphones and tablets since March. In the most recent quarter, ad prices increased 7% and the number of ads delivered increased 27%. Recently, Facebook posted a net loss of $59 million, or $0.02 a share, compared with profit of $227 million, or $0.10, reflecting a larger provision for income taxes; however quarterly revenues have increased for the company over the past two quarters.

A challenge that both Facebook and LinkedIn are facing is the switch to mobile. Especially for LinkedIn, the switch to a mobile-friendly avatar will mean great new things for a company whose users almost all have smartphones. LinkedIn has already managed to diversify its revenue streams decently; now all they need to do is maximize earnings from each stream. The biggest challenge for LinkedIn is to justify its lofty valuation. Any hit to its earnings and the stock could fall flat.  

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ceciljohn2002 has no positions in the stocks mentioned above. The Motley Fool owns shares of Facebook and LinkedIn and has the following options: long JAN 2014 $20.00 calls on Facebook. Motley Fool newsletter services recommend Facebook 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.If you have questions about this post or the Fool’s blog network, click here for information.

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