LinkedIn Has Strong Prospects

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

LinkedIn (NYSE: LNKD) is climbing the ladder in the social media space. It has done very well in a number of areas such as growing revenues, signing up a large number of members and more importantly, outperformed the S&P by a large margin in 2012. LinkedIn is a first mover in the professional social media category, and a SWOT Analysis is a great way to check if it can maintain its market-leading position going forward. 

Strengths

  • User Base: LinkedIn now boasts of more than 200 million members, and in excess of 160 million monthly unique visitors to its social media platform. LinkedIn ranks as the 23rd most visited Internet property in the world as of 2013, which is up from the 25th slot it had at the close of Q3, 2012, according to data from comScore.
  • Category Leader & Brand Name: LinkedIn has reaped the first mover advantage effectively, and positioned itself as a leader in the professional networking space, which differs a little bit from traditional social media companies like Facebook (NASDAQ: FB) and Twitter. LinkedIn is getting solid momentum in signing up new users, and in the process, has built up a strong and recognizable brand name. 
  • Strong Business Model: LinkedIn has a well rounded business model with total revenues coming in from Marketing Solutions, Talent Solutions and Subscription revenue from premium accounts. The majority of its revenues flow in from the online recruitment business which doesn't consist of many formidable competitors other than Monster Worldwide (NYSE: MWW), and Gannett (NYSE: GCI) owned, CareerBuilder. Luckily for LinkedIn, Monster's revenues have been declining sequentially Q/Q, but CareerBuilder continues to grow at a steady rate as reported by Gannett Co at the end of Q3, 2012.  
  • Corporate Customers: LinkedIn's sales-force has been using their own professional networking site very well, as a result, the number of corporate accounts has increased from just 1000 in Q1 F'09 to almost 13,800 at the end of Q3 F'12. The on-boarding of all these corporate clients, has led to substantial revenue growth in all business segments. 

Weaknesses

  • Consumer Perception: Due to the professional nature of its social media platform, LinkedIn comes across as boring to a lot of members, as a result, members don't frequent the site relative to other social media sites.
  • User Engagement on LinkedIn is lower than other social media sites like Twitter, Facebook, Google+ etc. LinkedIn's page views on desktop are down substantially in the last two quarters; aggregate page views came down to 8.9 billion in Q3 F'12 from 9.4 billion in Q1 F'12. The number of page views per member has tanked considerably as well. 
  • Reliance On Recruitment Dollars: LinkedIn's revenues are increasingly coming in from the talent solutions segment. In Q1 F'09, the segment's contribution to total revenues stood at 27%, and at the end of Q3 F'12, this number jumped to 55%. This can effectively position LinkedIn as yet another recruitment site, and not as a social media platform. 
  • Mobile Monetization: According to comScore, roughly 25% of all unique visitors came in through mobile. Due to a smaller screen size on mobile, the number of page views are likely to be much lower than desktop and user engagement is also likely to be limited. LinkedIn is introducing new mobile based products which includes the portrayal of job posts on mobile but monetization from mobile hasn't gained much ground. 
Opportunities
  • Alter User Perception: LinkedIn can make the network a little more creative and recreational to alter the perception of the members. 
  • Recruitment Platform: Build out a more robust recruitment platform and snatch more market share from struggling competitor, Monster and also from CareerBuilder.
  • Utilize User Data: LinkedIn should start utilizing the data from users, to add more revenue in the form of display advertising. Even though, the online ad marketplace is a very competitive one, where the likes of Google (NASDAQ: GOOG) and Facebook dominate, it is an exponentially larger market than the size of the online recruitment space. 
  • Stimulate User Engagement: LinkedIn has to stimulate user engagement, and it is a major priority for the management team. LinkedIn recently added new products such as notifications, endorsements and newer home pages and also got 'Thought Leaders' to post content. All these additions should drive user engagement at least in the near term. 
  • Stronger Presence in Emerging Markets: LinkedIn has a large addressable market share in the form of signing up new members in places such as Asia, Europe and Latin America. Strong growth in adding new users especially in BRIC Countries, can lead to a lot of new Ad and Recruitment dollars for LinkedIn. Revenues from international markets contribute ~36% of total revenues, and over time, this can gain more ground.
Threats
  • Facebook is the unrivalled 800 pound gorilla in the social media space. Facebook recently built out a social jobs application and if Facebook embarks upon building a full fledged recruitment platform, it can hurt LinkedIn a lot. Why? Because ~55% of total revenues of LinkedIn come in from the Talent Solutions segment alone. 
  • Other Social Media Companies: A number of other social media companies are signing up a lot of members as well. If some of them can sign up a large number of users, or build a platform that is a little more 'professional' in nature, that can impact LinkedIn substantially. For example, Google built out Google+ Hangouts for Enterprises, which allows members to engage in multi-user video communication, and this service is increasingly being used by businesses of various sizes to communicate with employees. This trend might prompt Google+ to build out a talent solutions platform from the current social media offering. 

The Takeway

LinkedIn's business has a competitive advantage, and seems to be doing great in the short run. But unfortunately, this competitive advantage may not be durable in the long run, as the barriers to entry are not very large. And the competition from existing social media companies and other recruitment sites are likely to be more intense in the future, but LinkedIn's prospects look pretty good for now. 

 


ishfaque has no position in any stocks mentioned. The Motley Fool recommends Facebook, Google, and LinkedIn. The Motley Fool owns shares of Facebook, Google, 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus