LinkedIn: Post-Facebook, Groupon, Zynga, Digg
Jane 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), the uncool, has become the company to watch in the social media space. This is at a time when social media pioneer Digg is rumored to be selling for $500,000 to Betaworks. Digg was once valued at $140 million, reports THE WALL STREET JOURNAL.
It's ironic that LindedIn is being so closely followed. That's because it's all about business, not leveraging the social for socializing, chasing bargains, and playing games. Yet, it is being grouped with those masters of cool such as Facebook (NASDAQ: FB), Groupon, and Zynga. Given the backlash against that sector, LinkedIn probably doesn't relish being bunched with that group and being paid attention to for this reason.
Growth Rate
Among what's being watched will be LinkedIn’s Q2 earnings. When I contacted LinkedIn’s Investor Relations (IR) about what that date would be, the response from Matt Sonefeldt, Senior Manager IR, was that it hadn’t been determined yet but, “the cadence relative to past quarters will remain the same.”
From those numbers, some expect to get a handle on if LinkedIn can sustain its phenomenal growth rate. For Q1, overall revenues grew 101% to a record $188 million. That was the seventh consecutive quarter in which LinkedIn’s revenue had at least doubled from the comparable time the year before. Such information about its rate of growth since then could provide insight on how other social media companies, perceived as less solid, might do going forward. If there is trouble in LinkedInville, there could be even more signs of that among the seemingly weaker players, ranging from Facebook to Zanga. Slower growth could also sour the overall IPO market in social media. All this is happening as the media play up a weakening global economy.
Mixed Bets
On June 28, Chris Moreno of SumZero said he was shorting LinkedIn's stock, anticipating investors will see “LinkedIn’s first crack with 2Q earnings." Its stock price, Moreno views, is likely to fall to $48 (on July 10 at 99.53) and join other “displaced first-movers (e.g. Myspace, Yahoo!, AOL).” On the other hand, on July 2, professional day trader Adam Alvarez indicated that he was bullish. One reason was LinkedIn’s diversified revenue base. He expects it to return to the 120 level it was at last May. Incidentally, the recent developments such as Twitter’s ending the automatic sharing (syndication) of tweets with LinkedIn, the hacking into 6.5 million passwords, and mobile app which, unauthorized, gathered information from members’ calendars didn’t seem to have significant negative impacts on how the career site is regarded. After all, it’s all about work and that’s the number-one focus for so many around the world.
The Subscription iEconomy
Unlike Facebook, LinkedIn, as Alvarez cited, has more diverse revenue streams. In the Q1 earnings report, LinkedIn announced that Hiring Solutions had grown 121% to $103 million, Marketing Solutions 73% to $48 million, and Premium Subscriptions 91% to $38 million. While the latter is small compared to the other sources, it’s on-trend in the iEconomy where many of the most successful business models are those based on digital subscriptions. How LinkedIn manages its subscriptions and the revenues from them is also being watched and for reasons beyond social media companies.
Take the distressed newspaper industry. News Corp (NASDAQ: NWS) had been an early adopter in erecting a paywall for THE WALL STREET JOURNAL. Despite being part of a troubled sector, that publication has remained among the few which are profitable. The speculation is that it will be among the parts of the company’s publication business which will survive after it is split off from entertainment.
The one bright spot at The New York Times Company (NYSE: NYT) is the successful paywall for its iconic publication THE NEW YORK TIMES. So confident is the company in this business model that it has halved the number of free articles readers can access before the meter starts running. These right moves put the troubled company in a position of strength even if it's winds up for sale or is taken over.
On the other hand, not putting up a tollbooth can work against the price of the stock. The company can be perceived as lacking the confidence in its value and/or its ability to hold up against the competition. The Washington Post Company (NYSE: WPO) hasn’t established a paywall for its politically oriented newspaper THE WASHINGTON POST, even though it’s a presidential election year. A major competitor is POLITICO. Its stock has been stuck in about the middle of its 52 week range of 308.50 and 430.86.
Possible Revolution in Economic Research
A third reason LinkedIn is being watched is its data. The data it collects and sorts in real time had been of direct use to the U.S. government. Sure Facebook has data about members it can bundle together and present to advertisers. However, LinkedIn’s arena is just about anything and everything related to how human beings earn a living. That relates to the GDP.
Last March, THE ECONOMIST reported that, at the request of the White House Council of Economic Advisers, LinkedIn “calculated which industries and job titles were experiencing the biggest gains and losses.” The article quotes MIT’s Erik Brynjolfsson who predicts that, because of the granularity of the information and its being captured in real time, it could disrupt how economic research is done. That could become LinkedIn’s most prestigious part of its branding and major source of revenue. The company can also be positioned as performing a kind of public service.
Backlash Intensified
Given that LinkedIn is being closely watched, if its Q2 report disappoints, the backlash against the social media sector could intensify. Wary analysts and frightened investors could punish the companies. The gainers could be the slow and steady like PepsiCo, Coca-Cola, and even the current punching bag Procter & Gamble.
janegenova has no positions in the stocks mentioned above. The Motley Fool owns shares of Facebook and LinkedIn. Motley Fool newsletter services recommend 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.
