LinkedIn (NYSE:LNKD) is now 10 years old and it seems to me that it is executing its business strategy as well as it could have in the past, specifically in terms of product innovation and development and the creation of an internal culture that will take this company forward in the future. At around this time, many technology companies find it difficult to maintain the momentum because the founders tend to leave, especially after an IPO, and their entrepreneurial instincts and passion are sorely missed.
The business of business networking
The concept of business and professional networking has made considerable progress because of the success of companies like LinkedIn. Though not as immediately popular or successful like the social networking sites such as Facebook (NASDAQ:FB), business communication is being transformed through the use of networking and information sharing. The business of online professional networking is scaling up in areas such as recruitment and product marketing and promotion while social networking sites are expanding the range of services that they offer to businesses and professionals. Since the IPO in 2011, LinkedIn has generated more than half its revenue from talent solutions, which link potential employees to recruiters but is having problems in generating ad revenues from its growing base of mobile users. Premium subscribers generate ad revenues of only 20% of total revenues because of the low rate of conversion of users to paid subscriptions. One impediment to progress has been the lack of video interaction, which means that many recruiters are unable to use LinkedIn to conduct preliminary interviews for potential candidates.
The business strategy
For the first eight years, LinkedIn concentrated on connecting people with one another but, with its Influencers program, it has moved to creating an audience for prominent professionals to communicate their ideas and it does not cost them one penny in compensation. Among these influencers are people like Bill Gates, Barack Obama, Sir Richard Branson and Shinzo Abe. The response has been encouraging and is another step forward in increasing engagement with users. This should ultimately result in users returning to the site time and again and also spending more time there. Unlike Twitter or Facebook where messages keep users coming back, so far, LinkedIn has made it necessary for users to only come back now and again to check on jobs or to update resumes.
The new engagement strategy seems to be working because in the first quarter, page views increased by more than 60% from the same quarter of the previous year and top posts are regularly producing more than 100,000 views. Because engagement makes the site more useful day to day, an increase is bound to result in increased ad revenues and the sales of its own services. Revenue for the first quarter grew by 72% year-over-year to $324.7 million though it is hard to pin down the specific reasons.
The new focus on media
As another prong in its engagement strategy, the company has decided that the more news it provides the more reason for users to keep coming back. Between the acquisition of the new reader Pulse and the growth of LinkedIn Today, which is the news on its home page, it is emerging as a serious alternative for business news. The company has said that it would like the user to start every day to check out the latest insights and the news. Hopefully, this will increase sales of subscription based services and generate further online advertising revenue.
The bottom line
The company is expanding its range of services with the agreement to buy Slideshare, Inc., which is a professional platform for the sharing of documents and information. It is also seeking to further extend its range of services and to focus on expansion outside the United States and Canada, into the rest of the world. It is growing faster than Google and Facebook and there is every reason to believe that the new engagement strategy will continue to drive growth. If you are looking for investment opportunities in business and or social networking, I recommend doing further due diligence LinkedIn stock.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.