LinkedIn (NYSE:LNKD) will announce its Q1 2013 earnings on May 2. We expect strong growth driven by international expansion and a higher number of users and recruiters signing up for premium services. Although the revenue growth will remain high, it may come down as compared to Q1 2012 due to a higher revenue base and pressure on monetization resulting from expansion in emerging markets.
LinkedIn has become an effective tool for job seekers, recruiters and marketers to find the right audience and opportunities. In one of its investor presentations, LinkedIn stated that the addressable market size for worldwide talent acquisition and staffing services is $27 billion.  Given the company’s competitive advantage, and the fact that it earned less than $1 billion in revenues in 2012, there is big opportunity to grow. In this analysis we’ll look at some of the key drivers that will govern LinkedIn’s quarterly results.
International Growth Will Remain The Key Driver
We expect LinkedIn to showcase another quarter of solid revenue growth driven by international expansion and higher monetization. More than 70% of LinkedIn’s new users came from international markets in the last quarter. At the end of Q4 2012, about 64% of the company’s total user base was international.  However, international markets accounted for only 38% of total revenues, implying that there is a significant opportunity to improve monetization.  We expect this figure to increase this quarter as more international users realize the value of LinkedIn to professionals, marketers and recruiters. During Q1 2013, LinkedIn announced that it surpassed 4 million members in Australia, which is impressive given the country’s total population of close to 26 million. 
Needless to say, LinkedIn is seeing immense success in developed markets, but expansion in emerging markets such as India and Brazil has put some pressure on its overall monetization. However, these markets also offer huge growth potential from a long-term perspective and absence of strong direct competitors will help the company continue its expansion. Overall we believe that while the user base growth will remain solid, it will come down as compared to the first quarter of 2012.
Growth In Marketing, Job Postings And Premium Recruitment Services
Ads & Marketing – This business constitutes roughly 30% of the company’s value and generated close to $258 million in revenues in 2012. We expect a higher number of page views per visitor, as well as higher revenue per page view. LinkedIn is making efforts to increase user engagement with features such as likes, automated updates, ability to follow thought leaders, endorse each other, etc. 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 the user data that LinkedIn has. This in turn will help in more targeted advertisements that generate higher return on investment (ROI) and hence command higher pricing.
Recruitment Services And Job Postings – This business constitutes roughly 50% of LinkedIn’s value and generated around $524 million in total revenues in 2012, registering annual growth of 100%. We expect a substantial increase in job postings as well as higher growth in corporate customers that use LinkedIn’s services to find talent. This growth will be driven by LinkedIn’s targeted approach that matches job opportunities with the right candidates. In the month of January alone, job postings (at any given time) increased from close to 160,000 to over 200,000. This figure further increased to close to 220,000 in the month of April.
Looking at the available job postings on some of the biggest online job portals such as Simply Hired and using data from other sources such as the Bureau of Labor Statistics and LinkedIn’s job postings, we conclude that there exists a market of close to 3 to 6 million in global job postings that LinkedIn can target (see What’s LinkedIn’s Opportunity In The Job Postings Market). And these are not annual postings, which will be much higher as job postings on LinkedIn tend to refresh every 30 days.
Long-Term 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. Going forward, 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.
LinkedIn also acquired the newsreader app Pulse recently for $90 million in a transaction that included 90% stock and remaining cash. With Pulse’s more than 30 million users, LinkedIn is looking to boost the content offering on its website to increase user engagement and improve targeted search.
Our price estimate for LinkedIn stands at $90, implying a 50% discount to the current market price.
Disclosure: No positions.