LinkedIn: Coming of Age

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

Professional networking giant LinkedIn (NYSE: LNKD) has managed to silence skeptics when it posted year-end figures. The rapidly growing company has not only managed to demonstrate its ability to grow revenue and members but also laid out the foundation for getting users to frequent the platform. And most importantly the company's business has been growing profitably, unlike numerous other young tech companies. 

Strong Reacceleration of User Engagement

A major concern for LinkedIn's investors previously has been the deceleration in user engagement in terms of the number of pages viewed. However, the company introduced newer products like notifications, influencers and endorsements, which have been very successful in driving users to the site. Cumulative page views on desktop are up 10% quarter-over-quarter and ended at 9.8 billion view at year end.

Other metrics of member engagement including comments, likes and shares are at all-time highs. The success of the LinkedIn influencers and SlideShare paves the way for content marketing by companies on LinkedIn’s platform, which represents a big monetization opportunity for the company. And also, the LinkedIn’s presentation sharing site, SlideShare saw very high levels of user traffic with more than 47 million unique users, which is up 68% year-over-year. 

Global Reach and Addressable Market

LinkedIn now has more than 202 million members across more than 200 countries, which represents a growth of 39% year-over-year. An improved technological infrastructure aided in driving user engagement and monetization as well. The addressable market share for LinkedIn is roughly 600 million professionals around the globe.

The addressable market share of LinkedIn is much lower than social networking rival Facebook (NASDAQ: FB), but the mission of both the companies differ substantially in terms of the user segments they want to reach. The threat of Facebook is still present but Facebook is more focused on global consumer engagement, and less on the professional networking aspect.

LinkedIn's global reach is very apparent, at the end of 2012 almost 64% of total LinkedIn members are from outside the U.S. With an increased focus and heavy investments in product innovation, user engagement should gain momentum in the future. At the end of 2012, LinkedIn was the 25th most visited web property in the world.

Solid Numbers across the Board

The company recorded its first year with almost $1 billion in revenues. In 2012, LinkedIn’s top line grew a staggering 86% year-over-year and ended at $972.3m. Its bottom line is going in the right direction, and now stands at $22 million for 2012. Its EPS is up substantially as well and stood at $0.19 which is up from $0.11 from last year. As a result the stock has been hitting new all-time highs for the past few days. 

Talent Solutions Growing As Anticipated; Subscription Revenue Growing Faster than Expected

Once again revenues from Talent solutions saw rapid growth and came in at $161 million, which is a 90% year-over-year increase. LinkedIn’s hiring segment has been the major driver of total revenues accounted for more than 53% of total revenue in the Q4 2012. LinkedIn’s talent solutions should gain more customers as the firm continues to roll out localized versions of its web portal and also recruiting solutions, along with a price increase in certain developed markets. 

LinkedIn has consistently been the beneficiary at the expense of recruiting platform and rival, Monster Worldwide (NYSE: MWW). Even though, Monster has a partnership with Facebook, the company is still facing a secular decline. In Q4 2012, Monster's revenues were down 10% year-over-year, and the company is still on the lookout for a buyer. 

The LinkedIn's subscription revenues are primarily driven by sales and marketing professionals trying to land new business. As a result, the segment as a whole is getting strong momentum with revenues growing 79% on a year-over-year basis to end $59.4 million.

Mobile and Advertising Represent Big Opportunities

As consumers are increasingly leaning towards mobile, LinkedIn is in a great position to capitalize. LinkedIn’s mobile footing is becoming increasingly stronger with almost 30% of job viewers now accessing LinkedIn from mobile devices. Almost 27% of unique members are coming from mobile-based devices which are up from 15% in Q4 2011. In addition, LinkedIn is working on rolling out promoted sponsor content on desktop and on mobile, which represents another great monetization opportunity. 

In addition, LinkedIn's marketing segment also performed well with revenues growth of 68% year-over-year. The increased number of ads portrayed on the platform was the key driver and represents a big opportunity for future monetization. Unlike other Internet companies, LinkedIn's main revenue source is not from advertisements, and can aid in growing its top line in the future.

The Takeaway

The company’s strategy going forward is to expand its membership base across the globe and increased monetization stemming from delivering great value to the corporate clients and customers alike. However, LinkedIn is still retains its position as a recruiting site as most of its revenues stem in from selling subscriptions to recruiters.

The company's management is projecting a strong 2013 with a top-line growth of 45%-48%, which was great news for the stock. The strong growth prospects of LinkedIn going forward warrants a valuation premium on the firm. However, the company's recent run up led to the stock price incorporating most of the valuation premium, which limits the near term upside. 



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

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