LinkedIn's New Subscription Model Could Drive Revenue!

  • LinkedIn has introduced a cheaper premium subscription option, “Spotlight”.
  • “Spotlight” could boost revenue and profitability.
  • LinkedIn is risky at its current valuations.

LinkedIns New Susbcription Model Could Drive Revenue

The next time you log in to LinkedIn (NYSE:LNKD) and want to use one of its premium features, it won’t cost you as much. LinkedIn just launched a new subscription option named “Spotlight”, priced at one thirds the cost of previously available options. Cheaper subscriptions could drive revenues, making LinkedIn’s valuation relatively more reasonable than it currently is. The move is a definite positive, especially given the concerns that have emerged over a slowdown in LinkedIn’s revenue growth.

LinkedIn's New Premium Subscription Option “Spotlight”

The new “Spotlight” option allows users access to features like:

  •  “Premium Profile” – Larger images and customizable backgrounds
  • “Top Keyword Suggestions” - intended to help users show up more often in search results
  • “Larger Search Listings” – large sized listings in search results
  • “Who’s viewed my profile?” etc.

Users’ will have the option of having an “Open Profile”, one that is visible to people they are not connected to, enhancing their visibility. However, the “Premium Profile” feature will be made available to all members eventually, over the coming months.

The “Spotlight” option gives users access to all of LinkedIn’s premium features except “InMail”. InMail is the ability to send direct messages to those you may not know, or aren’t currently connected with on LinkedIn. The feature remains available only to subscribers of the “Business” and “Business Plus” plans.

Most importantly, the new “Spotlight” subscription is priced at $10 per month and $96 per annum (effectively $8/month for annual subscribers). Previously, the cheapest option available to seekers of premium services was priced at $30 per month.

Impact on LinkedIn Revenue from Premium Subscriptions

LinkedIn Revenue from Premium Subscription

Of the verticals, Premium subscription accounts for the smallest contribution to revenue. The segment has consistently contributed about 20% of revenue, indicating that these premium services are of utility, at least to a certain set of members at all points of time.

To the average user, the idea of spending $30 a month may not be very appealing. However, at one third the price, some of these users may be inclined to avail a premium subscription.

The features on offer do boost user engagement, one of the key focus areas for LinkedIn currently. Further, with the recent rollout of the profile rankings feature and the in-progress rollout of long form content publishing abilities to all users, premium services might become that much more of a value-add.

Most importantly, the new option could add to the revenue generated from premium subscriptions. One would imagine that premium subscribers are likely to spend more time on the platform making it more effective and engaging with potentially more user generated content. In more ways than one, growth in premium subscriptions is good news for LinkedIn.

“Spotlight” Could Drive Revenue Growth & Profitability

LinkedIn’s Q2 2014 revenue guidance pegs revenue at $500-550 million which translates to a slowdown in absolute revenue growth. Further, the company’s guidance also indicates that no net profits are likely to be recorded for FY 2014.

The guidance disappoints on both counts and has impacted LinkedIn’s stock valuations. LinkedIn’s stock price fell by over 11% in the week following the Q1 earnings release.

The new subscription option could not only boost LinkedIn’s revenues, but also increase profitability. Given that these features are already on offer to some members, the incremental cost of providing them to other members will be negligible if not nothing.

LinkedIn has beaten analyst estimates for 9 quarters on the trot, and this new feature might help the company keep up that trend.

LinkedIn Stock Valuation

At $156 a share, LinkedIn currently trades at a Price/Sales (P/S) multiple of 11.4. The stock’s current valuation makes it expensive given that growth has been slowing and profitability isn’t a standard feature in its results.

We think LinkedIn is a great business at an unattractive price and so, our analysis of LinkedIn stock does not assign the stock a buy rating at its current price.

To see LinkedIn’s latest stock price movement, click here (NYSE:LNKD)

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Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions. Neither Amigobulls, nor the author have any business relationship with any of the companies covered in this post.

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