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LinkedIn Gets Back on Track

Posted on Wednesday, May 4th 2016

After delivering a terrible fourth quarter last year, LinkedIn (NYSE: LNKD) reported surprisingly strong results. It owes it all to smart leadership thinking that has not only realigned the organization onto the right path, but has also made several innovative moves in the recent quarter to improve its monetization opportunities for the future.

LinkedIn’s Financials

For the first quarter of the year, LinkedIn’s revenue grew 35% to $861 million, significantly ahead of the Street’s forecast of $829 million. EPS of $0.74 was also ahead of the market’s projected earnings of $0.60 for the quarter.

By segment, Marketing Solutions revenue grew 29% over the year to $154 million. Premium Subscriptions revenue grew 22% to $149 million. Revenues from the Talent Solutions segment increased 41% to $558 million.

Among operating metrics, during the quarter, cumulative members grew 19% to 433 million. This was the strongest net additions to a quarter that LinkedIn has reported since the start of 2014. Unique visiting members grew 9% to 106 million members a month and member page views grew 34%. Page views per unique visiting member hit a record high delivering a 23% over the year growth.

For the current quarter, LinkedIn forecast revenues of $885 million-$890 million with an EPS of $0.74-$0.77. The Street was looking for revenues of $886 million and EPS of $0.71 for the quarter. LinkedIn expects to end the current year with revenues of $3.65 billion-$3.7 billion and an EPS of $3.30-$3.40, compared with the market’s forecast of revenues of $3.67 billion and an EPS of $3.20.

LinkedIn’s Innovation Engine and Potential Acquisitions

During the last quarter, LinkedIn has taken several steps to ensure it gets back on track. After a disappointing fourth quarter, LinkedIn realigned its portfolio and shuttered down Lead Accelerator, a business that was expected to bring in nearly $50 million in revenues. Lead Accelerator was born out of LinkedIn’s $175 million acquisition of Bizo in 2014. It focuses on improving the ability of marketers to target prospects better and was expected to be a high-growth opportunity. But LinkedIn realized that the manpower needed to boost Lead Accelerator was not worth the effort.

But, more importantly, it has focused on investing resources into new and more viable products. Last quarter, LinkedIn increased its focus on the Referral business that it had launched in October 2015. It also improved its ability to match talent with recruiters with the acquisition of Connectifier in February this year. Within Marketing Solutions, the company increased focus on Sponsored Content to deliver targeted advertising. Revenues from Sponsored Content grew 80% over the year to become one of the fastest growing sections within the Marketing Solutions segment. It now accounts for 56% of the revenues from Marketing Solutions, translating to $86 million in revenues. In addition, there are opportunities for the company to acquire MarTech SaaS companies that offer more specific value in certain areas that are related to Sales, CRM, Campaign Management, Lead Nurturing, etc. LinkedIn certainly has the market cap to build this portfolio of solutions over the next next couple of years.

Last week, LinkedIn announced the launch of LinkedIn Students, a mobile app for the iOS and Android platforms that is focused on about-to-graduate college students. The app provides college students with the ability to view ideas to help get jobs, display recommended jobs with median salary, job descriptions, and additional information such as job interview related articles and other career-related content relevant to them. The app, if successful, will help LinkedIn establish a stronger presence in the 18 to 34-year-old demographic where alternate forms of social media, such as Facebook and Twitter, are still preferred.

Last month, LinkedIn also expanded into the freelance project space with the launch of ProFinder. The service matches customers searching for freelancers with freelance professionals with the right skills. Customers can submit a request detailing the work that needs to be done and other basics including expected timeframe and budgets, and LinkedIn will then send them up to 5 customized offers from professionals. At present, the service is available for free, but it does offer a monetization opportunity in the future. UpWork is the current market leader in that space. LinkedIn may acquire the company in due course to strengthen their presence in the space.

Withing the Learning & Development segment, LinkedIn has completed the integration of Lynda.com’s team and is now focused on integrating its technology and content into core offerings. LinkedIn recently released LinkedIn Learning Paths, an aggregator web site that collates content relevant to a specific topic or course from across LinkedIn. It is also testing integration of Lynda.com into relevant LinkedIn subscription packages.

Overall, LinkedIn has proved yet again that it is a force to reckon with. Some believe that the company may be vulnerable in its core products from other competitors. I think that unlike other social media sites like Facebook, Twitter, Snapchat, Pinterest, Instagram, etc. LinkedIn has clearly established itself as a leader in professional networks. It is by far the most reliable source of information used to validate employment and professional qualifications.

Within the recruiting process though, the company still has to take a few more steps. Over the past few years, online job-boards like Indeed and Glassdoor have taken over the market. According to data by SilkRoad, Indeed accounts for half of the hires sourced through external online sources. The high market share is linked to the low cost per hire that Indeed offers. LinkedIn does not disclose its pricing, but it is known to be among the higher priced offerings out there. To top it all, LinkedIn, unlike companies like Monster, does not yet deliver advanced analytics to confirm consistent ROI to employers. Some acquisitions are likely to be tucked in to complete the requisite functionality.

LinkedIn’s stock is currently trading at $124.91 with a market capitalization of $16.5 billion. It hit a 52-week high of $258.39 in November last year. It has recovered from a 52-week low of $98.25 it had fallen to in February this year.

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