- The recent strategic acquisition of Lynda.com will add to LinkedIn revenue base over the long term.
- Increasing member base and strong revenue model shows it has significant long term growth potential.
- It is one of the few social networking sites which can operate in China. Google, FB, Twitter are banned in China.
- However, Lynda acquisition and heavy investments in Talent, Technology, Product and Monetization is expected to affect the financials in 2015.
LinkedIn is the world’s largest online professional networking platform. As of Apr 30 2015, they had approximately 364 million members spread over 200 countries and territories.
LinkedIn revenue has been consistently increasing for the past 5 years. In 2014 it launched LinkedIn in Simplified Chinese which marks its entry into the largest potential market. This makes it one the few social networking sites allowed to operate in China, unlike its competitors Twitter, Facebook and Google who recently faced threat of being blocked from Russia also. In the fiscal 2014, 40% of LinkedIn's total revenue was from operations outside the US.
The company has a strong revenue model. The source of revenue is the monetized solutions, viz.:
- Talent solutions: This segment includes LinkedIn Corporate Solutions, LinkedIn Job Postings and Subscriptions for individuals. The aim of these products is to effectively identify and acquire right talent pertaining to the needs of enterprises and professional organizations
- Marketing solutions: This segment includes Enterprise Solutions, Sponsored Updates, LinkedIn Ads and Ads API, which enables enterprises and individuals to advertise to their member base.
- Premium Subscriptions: This segment targets small- and medium-sized enterprises and professional organizations, individual members and business groups in larger enterprises. The subscription packages are designed for members to manage their professional identity, grow their networks and connect with talent. The premium social selling solution, LinkedIn Sales Navigator, helps sales professionals to quickly find, qualify and create new opportunities along with accelerating the social selling capabilities of their sales organization.
In Q1 of fiscal 2015, Talent Solutions revenue increased 36% YoY to $396 million; Marketing Solutions grew by 38% YoY to $119 million and Premium Subscriptions increased 28% to $122 million.
According to company’s annual report, they offer Sponsored Updates on mobile devices, however historically, their Marketing Solutions products have not been made widely available on mobile products. This could mean huge growth potential once monetizing strategies for solutions is implemented on mobile devices as mobile represents more than half of traffic to LinkedIn.
They have recently launched a new app, Elevate, in their mobile portfolio. This app helps companies and employees pull out and share high-quality content as well as measure the impact on the employees (reception of shared content, profile views and how many people the content reached) and companies (hires, leads, sales). Adobe (NASDAQ:ADBE), Quintiles (NYSE:Q) , Unilever (NYSE:UL) and a few other companies piloted the app and got positive results. This app is currently available to only a select number of companies and will be available to all companies by Q3 of fiscal 2015.
The recent acquisition of Lynda.com will add to revenue growth in long term. Lynda.com provides online courses pertaining to business, technology and creative skills to help people achieve their professional goals. It is expected to increase the revenue by $20-25 Million in the fiscal 2015.
In the near future, the growth in sales force and hiring in the R&D department will affect the operational cost although these costs are expected to yield results from 2016. The integration with Lynda.com will also affect the short term financials. Since 40% of revenue is from locations outside US, the currency fluctuation could also significantly impact the financials.
Comparing the LinkedIn price to sales ratio with its competitors, LinkedIn still has upside potential. Even though LinkedIn might not be able to show positive net income in the coming quarters majorly due to increased R&D expenses, talent acquisition costs and completion of lynda.com acquisition, I have faith in the company over the long term.
Note: You can also view Amigobulls' LinkedIn stock analysis video for a quick roundup of key fundamentals.
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Disclaimer: This is an independent article. I have no professional relationship with the company mentioned. I have no position in the mentioned stock and do not plan to initiate any position in the next 2 working days. This document does not provide personal investment advice. Please consult your financial advisor before making any investment decision.