LinkedIn China: A Huge Opportunity!

Linkedin China: A Huge Opportunity!

LinkedIn (NYSE:LNKD) has made its much anticipated foray into China with a Chinese language version of its website christened ‘Ling Ying’. While the site is currently accessible only by invitation, when it does roll out to the public, LinkedIn could be on the horizon of its biggest opportunity yet. We look at what China could add to LinkedIn’s member base and revenue if the company does manage to meet its expectations from China.

China presents LinkedIn with the world’s 2nd largest pool of internet users with 618 million users. Further, this is a market to which LinkedIn’s peers like Facebook, Twitter and Google don’t have access, either by choice or by force. To illustrate the potential of a compelling Chinese website in China, the Chinese equivalents of Twitter, Sina Weibo and Tencent Weibo had around 287 and 277 million active users in the second half of 2012 as against Twitter’s global count of 241 million at the end of 2013. This, even as questions are being raised about Twitter’s further scalability!

China’s Internet Users Demographics

Of the 618 million internet users in China, LinkedIn would ideally be looking to target the 20-40 age group.

China internet users demographics

China’s internet user demographics are almost identical to that of India, the world’s 3rd largest internet user pool after U.S and China. While China has 80% of its internet users aged below 40, India has 123 million users or 75% of its total internet user base of 165 million aged below 35.

China’s impact on LinkedIn’s member base

LinkedIn aims to reach a tally of 140 million users in China. But the important question is, how long will it take them?

In 2013, India added 7 million users to LinkedIn, representing an addition of 5.7% of its internet user base aged below 35. At a similar rate China should be able to add about 28 million users in a year. However, considering that LinkedIn’s Indian operations are now over 4 years old as against a fresh start in China, adding users at 1.5 times that rate should not be very difficult for a Chinese population that is very net savvy. LinkedIn's APAC user base has tripled in the last 3 years to reach 50 million members and we expect the same to happen to China’s member base in its first 3 years.

As for LinkedIn’s user base ex-China, the member Q/Q growth rate has been declining and should continue to do so, eventually reaching about 3% in FY 2017 from its FY 2013 average of 8% even if the average growth rate slows by just 1% every year.

It’s likely that the Chinese website will only start contributing in the second half of 2014. If LinkedIn does manage to reach its target of 140 million members in China, this is how its user base could look.

LinkedIn and LinkedIn China user base estimates

Impact on LinkedIn’s Revenue

Since LinkedIn provides the number of registered members as opposed to active members, we used data from QuantCast to compute the average revenue per active member (ARPM) for LinkedIn, both globally, and in Asia Pacific (APAC).

In Q4 2013, the APAC ARPM at $1.7 was just over half of LinkedIn’s overall ARPM of $3.1. Typically, newer markets are a drag on the average monetization rates. In its first 12 months of operations, we expect China’s ARPM to be around half of the APAC ARPM while it should catch up with its APAC peers in the second year. The ratio of active users in APAC is a good indicator of the active user ratio for China. ARPM*Active Members = Revenue.

For LinkedIn ex-China, the percentage of active members has been declining at about 10% every year in the last 3 years. We expect it to continue to decline from about 50% in Q4 2013, to about 40% at the end of 2017. In the same period the ARPM should continue to inch upwards from $3.1 to reach about $4.3.

LinkedIn total and China revenue projection till 2017

Linked-In China: The Challenges

LinkedIn faces a host of challenges as it enters China, starting with the most obvious one of complying with Chinese censorship norms which could deny the site some of its content.

While this may not be as much of a problem for LinkedIn as it was to Facebook and Twitter due to the nature of its content, censorship could undermine the value of discussions on groups and communities. And these groups probably are some of the more engaging elements of its content. Even as LinkedIn has been trying to make its user experience more compelling globally, in China, generating engaging content that’s locally relevant and in the local language will be a challenge.

On the brighter side, the company seems to be making the right moves to create a local flavor. LinkedIn has integrated Sina Weibo and Tencent’s WeChatinto its platform in China to allow users to import their contacts from these platforms and cross post. With LinkedIn profiles being synced with users’ WeChat accounts, it will be interesting to see if LinkedIn can piggy-back on WeChat’s fast growing user base of 236 million which nearly tripled from the year ago.

Competition from the likes of Zhaopin, rumoured to be the latest US IPO candidate and sites like 51Job, Tianji, etc, should not be a big bother since none of them are currently very big.


Undoubtedly, China presents LinkedIn with a great opportunity and the promise of single-handedly generating more revenue than APAC currently does. However, that comes at the end of a road which even big guns like Google have chosen not to traverse.

If they succeed, the rewards will obviously be worth the effort. If they don’t, they will only be joining a list of illustrious names like Google, Facebook and Twitter that couldn't make the cut for a variety of reasons.

As far as LinkedIn's valuations are concerned, at today’s price to sales (P/S) multiple of 16x, we think its current price of 206.79 a share already factors in most of the potential future growth.

Here are some links to blog posts by Derek Shen, President of LinkedIn China, and LinkedIn CEO Jeff Weiner on the subject.

To see our analysis and score for LinkedIn click here

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

Vikram Nagarkar Vikram Nagarkar   on Amigobulls :

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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