Why LinkedIn's Stock Performed When Others Didn’t? It All Boils Down to Fundamentals
Ashish is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
We have long been saying that LinkedIn (NYSE: LNKD) is a fundamentally better company than its web 2.0 peers. In this post we will illustrate how LinkedIn performs better than its peer group and what makes it the best social network play. For this purpose, we will compare it with two of its web 2.0 peers which offered their IPOs around the same time as LinkedIn: Facebook (NASDAQ: FB) and Zynga (NASDAQ: ZNGA) on certain key financial metrics.
First and foremost if we look at the revenues of LinkedIn, we see that LinkedIn has outperformed both Zynga and Facebook significantly in terms of revenue growth YoY. While Facebook’s revenue rose 32% YoY and Zynga’s rose 19% YoY in Q2, LinkedIn has continued its astonishing growth and grew 89% YoY revenue growth outperforming both of them. Furthermore, as LinkedIn is still in the early stages of its growth cycle, we believe that it can grow at a higher pace than Facebook and Zynga for many quarters to come.
Source: Company Reports and TheAnalystHub.com research
In addition, LinkedIn outperformed both Facebook and Zynga when we look at user growth. LinkedIn saw a strong user growth of ~60% YoY in Q2 while Facebook’s user growth rate decreased to 29% Y/Y in 2Q12 from 58% in 1Q11 and Zynga’s 2Q12 user growth increased to 34% YoY against a weaker comp. Looking at the past trends we don’t see LinkedIn slowing down in user growth as we see with Facebook. We believe that LinkedIn with its superior revenue model will continue adding to the revenues as the number of user increases. We are also positive about the scope of improvement in LinkedIn usage as we see the number of users on LinkedIn. While Facebook is reaching near saturation levels, we believe that LinkedIn still has plenty of scope to grow.
Source: Company Reports and TheAnalystHub.com research
LinkedIn has also beaten both Facebook and Zynga on EBITDA growth. LinkedIn has been posting three digit EBITDA growth on a consistent basis. While Zynga’s EBITDA remains flat and Facebook EBITDA is dropping every passing quarter, LinkedIn has been able to maintain its high EBITDA growth.
Source: Company Reports and TheAnalystHub.com research
The higher the EBITDA margins, the less operating expenses eat into a company's bottom line, leading to a more profitable operation. While the EBITDA margins for both Facebook and Zynga show a negative trend, LinkedIn EBITDA margins show an upward trend which illustrates the scalability potential of LinkedIn.
Source: Company Reports and TheAnalystHub.com research
We must say that this is a classic example of how stock market moves on fundamentals and not just the hype. We believe that LinkedIn is rightly placed at a higher PE than Facebook and Zynga and continue to believe that it is the best play in the web 2.0 companies. To conclude, we believe that LinkedIn with its strong fundamentals has the potential to continue its growth story and hence we remain bullish on this stock.
Note: The article was originally published on TheAnalystHub.com. For more in-depth research articles please visit our site today.
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