Groupon, LinkedIn and the Facebook Effect
Tim is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The mid to long-term concerns voiced by analysts and investors regarding the growth prospects for Groupon (NASDAQ: GRPN) and LinkedIn (NYSE: LNKD) are legitimate. Any new(ish) internet growth company walks a road filled with potholes – that’s just reality. Some management teams are simply better at recognizing the bumps and are able to address them as they arise. Others? Not so much.
As mentioned in my previous articles, Groupon and LinkedIn belong in the former group - strong management teams with definitive plans for growth. Both have too many things going for them to warrant the recent sell-offs - so what's the deal? The culprit for the entire downtrodden sector remains Facebook (NASDAQ: FB) – and that’s great news for those who sat on the sidelines, either by choice or necessity. The Facebook IPO fiasco was the impetus for what became a snowball effect – and companies got caught up in the negativity whether ties with the social networking phenomenon were legitimate or not.
For Groupon shareholders the release of 600 million additional shares the end of last week – as per the IPO specs – certainly didn’t help matters. Though the pressure from Facebook haters had already taken its toll on the stock, the newly released shares added fuel to the fire. But here’s the thing - if you believe Groupon has the wherewithal to continue outpacing competitors like Google's (NASDAQ: GOOG) "Offers" product and LivingSocial, the negativity associated with the Facebook effect is a dream come true.
Groupon CEO Andrew Mason and his team have a definitive domestic and international growth plan in place, and are on track to implement it. Continued sales increases in North America– as we saw in Q1 - are really just a bonus at this point. The company’s real opportunities lie overseas and the rollout of the SmartDeals technology around the world will help keep the momentum going.
LinkedIn is another sound investment option in the wrong place at the wrong time. What makes this opportunity so intriguing is the Facebook effect hit LinkedIn’s valuation hard – yet in many ways the company is a better alternative than Facebook by a long way. The concern for Facebook investors – beyond all the trading hiccups and pushing the IPO envelope valuation-wise – is the limited revenue lines. That’s a legitimate concern and will continue to be even after the company figures out how to generate ad revenue from mobile devices.
What makes LinkedIn a better option is CEO Jeff Wiener and the crew successfully diversifying revenue lines – and it’s working. Revenues are up, the number of users is up exponentially (almost 60% year-over-year to a whopping 160 million) and much like Google, LinkedIn recognized early on the need to generate sales from multiple products. The primary source of revenue has been and continues to be the Hiring Solutions division. As the domestic job market slowly picks up steam LinkedIn should continue to derive significant earnings from the division.
The Marketing Solutions and Premium Subscription lines together equaled about 46% of the company’s $188 million in Q1 2012 revenue. Clearly there’s an opportunity to spread the revenue wealth even further, and Jeff’s plans to continue adding to the workforce – much of which in the sales department – will help address the disparity.
Investors would be wise to avoid Facebook like the plague – way too many fundamental issues to be addressed. But that doesn’t mean you can’t profit from the Facebook effect, and Groupon and LinkedIn are both sound alternatives.
timbrugger has no positions in the stocks mentioned above. The Motley Fool owns shares of Amazon.com, Facebook, Google, and LinkedIn. Motley Fool newsletter services recommend Amazon.com, 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.If you have questions about this post or the Fool’s blog network, click here for information.