Is This Company LinkedIn?
Chad is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
There are two companies that many people point to as part of the new “bubble” that they see in social media stocks. One of these companies is Facebook (NASDAQ: FB), which has had a rough outing since coming public. The other company is LinkedIn (NYSE: LNKD), which admittedly sells for a forward P/E ratio of about 166. This being said, these are two different companies that have two completely different focuses. While both companies have bright futures for user growth, at this point only one is making good money from their business.
In the company's most recent earnings report, LinkedIn showed revenue up 89% and non-GAAP earnings per share matched analyst estimates at $0.16. With roughly 175 million members, LinkedIn certainly can't match the size of membership that Facebook currently supports at over 955 million. However, LinkedIn's primary purpose is to connect employers and potential employees. Facebook's purpose is to connect individuals, which is less income driven and driven by more social interaction. This key difference between the two companies is the reason that LinkedIn looks like it could be a good long-term investment, versus Facebook may always have more users, but be less profitable. LinkedIn operates in basically three segments and all three showed truly impressive growth figures.
The company's Hiring Solutions division grew revenue at 107%. Since this unit represents greater than 50% of the total company's revenue, this is good news for investors. The company's Marketing Solutions division saw total revenue increase 64%, representing 28% of total revenues. Last but not least, is the company's Premium Subscriptions service which grew revenue by 82%. You can see that all three divisions grew revenues at a significant pace, and the company also has introduced a few new services, to better engage their users and help recruiters at the same time.
The company's flagship product is LinkedIn Today, and the design was recently simplified, which has led to engagement increasing 150%. In addition, the company completed the roll-out of a service called Talent Pipeline to its recruiter customers. This is critically important to any business that needs to keep a constant list of prospective candidates. From my personal experience managing a business for over ten years, I can tell you firsthand that having access to a list of good candidates is critical. Though the unemployment rate in America is high, recruiters still struggle to find qualified candidates. The addition of Talent Pipeline allows recruiters to find qualified prospects and in a way, bookmark these people if hiring needs arise. The simplification of the company's primary product, and the addition of this key tool for recruiters, shows that LinkedIn is not resting on its laurels. While some investors might be nervous about the companies high P/E ratio, the opportunity for the company is vast.
When you consider that just a few years ago Monster Worldwide (NYSE: MWW) became a tool for potential job seekers, one would've expected the company to maintain this lead. However, what LinkedIn has done differently is, created a network that is designed to be used by both professional recruiters and jobseekers. Monster Worldwide I think for many was seen as a job seeking site and not an interactive site by any means. In addition, I've personally found in multiple cases that Monster's job listings worked similar to classified ads. Sometimes the position was no longer available, even weeks after the listing was still on the Monster website.
Where Facebook is concerned, though the company would love to put LinkedIn out of business, the interactivity of the site does not seem to be designed for business and prospective employee interactions. Facebook has already established an identity of sorts in the social community. Facebook is where people go to find other individuals they know. While many businesses and marketing professionals want to use Facebook, I'm not sure that Facebook the company will benefit directly. While a company might set up a Facebook page, this allows the company and individuals to interact with each other. However, similar to individual interactions, users can be on Facebook for months at a time and Facebook might not make a dime. LinkedIn on the other hand, has established the identity of a place you go to get connected to employers. Even with lower unemployment rates, the company can still serve millions and millions of users. Considering the three companies valuations, LinkedIn is actually not as expensive as it first appears.
Considering that Facebook is expected to grow at roughly 27% over the next few years, yet sells for a forward P/E ratio of nearly 44 gives the stock a PEG ratio of 1.63. Monster Worldwide is expected to grow at 17%, but this number may be overstated as analysts have recently cut both 2012 and 2013 projected earnings significantly. LinkedIn by comparison, has the highest expected growth rate approaching 60%, and while the 2012 P/E ratio of about 166 seems high, moving forward to 2013 the stock sells for roughly 80 times earnings. Looking at 2013 earnings and growth rates, investors should realize that LinkedIn and Facebook have nearly the same PEG ratios. The difference is LinkedIn is expected to grow nearly 30% faster over the next several years. There's no question that the stock is not for the faint of heart. However, for a company focused on employment at a time when unemployment is high, the opportunity to establish itself as the dominant career networking site have never been better.
MHenage has no positions in the stocks mentioned above. The Motley Fool owns shares of Facebook and LinkedIn. 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.