LinkedIn (NASDAQ:LNKD) recently acquired the newsreader app Pulse, for $90 million in a transaction that included 90% stock and remaining cash [LinkedIn Acquires Pulse, LinkedIn’s Press Release, Apr 11 2013]. With Pulse’s more than 30 million users, LinkedIn is looking to boost content offering on its website to increase user engagement and improve targeted search. In this analysis we’ll briefly look at how LinkedIn may leverage Pulse, and what are the other strategies it is adopting to boost user engagement on its site.
Pulse was founded in 2010 to solve the problem of organized news feed on the mobile Internet platform. Currently, the app has more than 30 million users distributed across iOS and Android operating systems, in more than 190 countries. Close to 12 million of these users are outside the U.S., and as a result, the app is available in nine languages in order to cater to the local needs of several regions. More than 750 publishers are using Pulse to distribute their content. These figures speak for the app’s global appeal and vast customer base that it has established.
How LinkedIn May Leverage Pulse?
Last year, Pulse partnered with The Wall Street Journal, to enhance its premium content and expand its reach amongst the more affluent user base [Pulse redefines mobile content subscriptions with launch of Premium Sources]. A lot of these professionals are likely to have premium accounts on LinkedIn and integrating a news service might be something that they will find useful. In addition to this, news reading habits of LinkedIn users can give insights into their interests, and this data can be used by recruiters and marketers to their advantage. Although LinkedIn is already doing well in terms of revenue growth, the market valuation suggests that the investors are expecting the company to sustain high growth for a long time, given that LinkedIn is trading at P/E (price to earnings ratio) of close to 960. Therefore, we can expect LinkedIn to do multiple experiments and try out a lot of features. Even if one of them makes it big, it might be just what the company needs to sustain its steep valuation.
The value from Pulse may not just be limited to letting marketers and recruiters take advantage of the user data. LinkedIn will have an opportunity to integrate relevant job postings with the type of content that the users read on Pulse. Rather than requiring a manual search, relevant jobs can become ingrained as a natural part of LinkedIn’s content. A parallel can be drawn with Facebook (NASDAQ:FB), which is tying to smoothly integrate advertisements within the content sharing experience of its users.
LinkedIn’s Broader Strategy Is To Increase User Engagement
LinkedIn is not just about recruiting anymore; it is becoming a great platform for marketers to find potential customers for their products through LinkedIn’s tools. As the company heads into 2013, the growth from the sheer user base expansion may slow down and the company will have to shift its focus on increasing user engagement and better monetization of its platform.
In this quest, the company recently made some changes to its search tool that are aimed at making search more convenient and intelligent for the users. With this change, LinkedIn users don’t need to search for people and companies independently, instead they’ll see the relevant lists from different categories as they type in the search query. The bigger picture is that as LinkedIn’s user base grows, the company will need to better organize the data resulting from this growth. There is a great value in targeted and relevant searches. They not only improve the user experience, but also help marketers, recruiters and sales professionals in efficiently reaching out to potential customers and candidates.
Last year, LinkedIn also bought professional content sharing site Slideshare Inc. Other efforts to increase user engagement include features such as likes, automated updates, ability to follow thought leaders, endorse each other and more. This is likely to drive the usage of the site and increase the number of page views per visitor. In addition to this, increased user engagement will enhance LinkedIn’s user data. This in turn will help in more targeted advertisements that generate higher return on investment (ROI) and hence command higher pricing.
Our price estimate for LinkedIn stands at $90, implying a 50% discount to the current market price.
Disclosure: No positions