LinkedIn's CEO Discusses Q3 2013 Results - Earnings Call Transcript

| About: LinkedIn (LNKD)

LinkedIn Corp (NYSE:LNKD)

Q3 2013 Earnings Call

October 29, 2013, 5:00 pm ET


Matt Sonefeldt - Head of Investor Relations

Jeff Weiner - CEO and Director

Steven Sordello - Chief Financial Officer, Senior Vice President


Gene Munster - Piper Jaffray

Brian Nowak - Susquehanna

Heath Terry - Goldman Sachs

Neil Doshi - CRT Capital

Scott Devitt - Morgan Stanley

James Lee - CLSA

Brian Pitz - Jefferies

Mark Zgutowicz - Northland Capital

Douglas Anmuth - JPMorgan

Justin Post - Merrill Lynch


Good day, ladies and gentlemen, and welcome to LinkedIn third quarter 2013 earnings conference call. At this time, all participants are in listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions). As a reminder, this conference call is being recorded.

I would now like to turn the conference over to Mr. Matt Sonefeldt, Head of Investor Relations. Sir, you may begin.

Matt Sonefeldt

Good afternoon. Welcome to LinkedIn's third quarter of 2013 results call. Joining me today to discuss our results are CEO, Jeff Weiner and CFO, Steve Sordello.

Before we begin, I would like to remind you that during the course of this call, management will make forward-looking statements, which are subject to various risks and uncertainties. These include statements relating to expected member growth and engagement, our product offerings including mobile and our product deployment process, results of our R&D efforts, revenue including revenue growth rates of our three product lines, Talent Solutions, Marketing Solutions and premium subscriptions, adjusted EBITDA, depreciation and amortization, stock-based compensation, share dilution, taxes, the product mix between online and field sales, churn rate and our expenses.

Actual results may differ materially from the results predicted and reported results should not be considered as an indication of future performance. A discussion of risks and uncertainties related to our business is contained in our filings with the Securities and Exchange Commission, in particular, the section entitled Risk Factors in our quarterly and annual reports and we refer you to these filings.

Also I would like to remind you that during the course of this call, we may discuss some non-GAAP measures in talking about the company's performance. Reconciliations to the most directly comparable GAAP financial measures are provided in the tables in the press release. This conference call is also being broadcast on the web and is available through the Investor Relations section of the LinkedIn website.

With that, I will turn the call over to our CEO, Jeff Weiner.

Jeff Weiner

Thank you, Matt and welcome to today's conference call. I will start by summarizing the operating results for the third quarter of 2013 and then I will recap some of the highlights and key milestones since our last call. I will then turn it over to Steve for a more detailed look at the numbers and outlook.

Q3 was a strong quarter for LinkedIn. Continued innovation in strategic areas such as mobile, students and LinkedIn as a professional publishing platform, as well as ongoing improvements to the core products resulting in increased member growth and engagement. We exited the third quarter with financial results at record levels.

For Q3, overall revenues grew 56% to a record $393 million. We delivered adjusted EBITDA of $93 million and non-GAAP EPS of $0.39. At the end of Q3, cumulative membership grew 38% year-over-year to more than 259 million members, the second straight quarter of acceleration. Professionals outside the United States now make up 66% of LinkedIn.

With regard to engagement as measured by comScore, which excludes mobile, LinkedIn and SlideShare combined for an average of 184 million unique visitors in Q3. When excluding SlideShare, we averaged 142 million monthly unique visitors during Q3, growing 30% year-over-year. We also saw year-over-year. page view growth up 30%.

Our internal engagement metrics, which include mobile, showed accelerating growth for the second straight quarter. Unique visiting members grew approximately 49% year-over-year. Member page views grew approximately 72% in Q3.

Our key member value propositions remained consistent. We enabled professionals to build their identities in networks, providing them the insights and knowledge they need to be more successful in their careers and worked everywhere they work.

We want to highlight a few of our key initiatives since our last call that deliver across all of these value propositions. Relevant design improvements and endorsements and people you may know drove significant lift in skills including on profiles as well as invitation connection rates.

More specifically, in Q3, we surpassed 3 billion total endorsements on the platform. Having reached critical mass, we are now turning our attention to introducing new models and algorithms designed to optimize the overall quality and relevance of endorsements.

We also made improvements to further LinkedIn as the definitive professional publishing platform. Changes to the backend infrastructure supporting LinkedIn channels are driving more than 15 times increase in the number of articles been delivered for members.

New machine learning algorithms for the LinkedIn feed have improved the relevance of the organic and sponsored content appearing on the homepage. We saw 33% increase in desktop click-through rates on items in the feed in Q3, and new comments functionality within influencer posts, allowing members to like or respond directly to a specific comment and mention individual members have driven a 50% increase in comments volume.

Just last week, we announced that Pulse will become the primary news app and content brand for LinkedIn. The integration of Pulse and LinkedIn Today, which will now be called Pulse will include a uniform login experience for seamlessness news consumption and content sharing, allowing LinkedIn members to bring their professional identity into the Pulse content experience.

In Q3, we also launched University Pages, a major initiative to make LinkedIn an indispensable resource for students, the next generation of professionals. In the first two months since launch, there are already 1,500 University Pages in over 60 countries.

Going forward, we have a number of efforts in the works to make LinkedIn an integral resource for aspiring professionals to build their identities in networks and gain the knowledge they need to accelerate their careers.

Shifting now to mobile, we have talked about is an area of strategic importance for LinkedIn. Over the last two years, we have made significant progress toward our mobile goals. As recently as the first quarter 2011, mobile accounted for only 8% of our unique visiting members. This past quarter that number reaches 38% and in some markets such as certain markets such as Turkey and Singapore, it's already eclipsed 50%. Additionally, members who used LinkedIn on mobile and desktop are two-and-a-half times more active than those that use just desktop.

Earlier this month, we made several major announcements designed to make sure that LinkedIn is everywhere our members work and meets the needs of today's increasingly mobile professionals.

Last week, we introduced a completely re-imagined LinkedIn app for the iPad with new features, such as expanded search a personalized feed with rich visuals, more streamlined social features and sponsored updates in the feed. In addition, we preview a brand-new pulse apps that includes a complete visual refresh and integration with insights and knowledge our members gain on LinkedIn.

We also recognize that the value that LinkedIn delivers should extend beyond our own mobile and desktop environments and into the most essential tools professional use everyday such as e-mail, so in October we also launched Intro for iPhone, which transforms e-mail experience.

Intro integrates LinkedIn profile information right into the iPhone e-mail inbox helping members put faces to names, establish rapport and engaging more effective communication. Helping our members build their professional identities, networks and knowledge is our primary focus. In doing so, we are better able to deliver useful offerings to customers of our Talent Solutions, Marketing Solutions and premium subscriptions products. These product lines are designed to transform the way our customers hire, market and sell on a global basis.

In Q3, Talent Solutions grew 62% to $225 million. Marketing Solutions was up 38% to $89 million and Premium Subscriptions increased 61% to $80 million.

For Talent Solutions, earlier this month, we launched Recruiter Mobile at our Annual Talent Connect conference, which become the largest and most influential event in the recruiting industry.

Recruiter Mobile brings all of the functionality of our flagship Recruiter platform to the iPhone or via mobile web enabling recruiters to find, connect and communicate with the best passive candidates.

We also launched Mobile Work With Us, which helps recruiters better target those passive candidates. These new products advance our efforts to mobilize the desktop recruiting process.

Our Marketing Solutions, Q3 marked a broad launch of our first major content marketing initiative Sponsored Updates. While it is still early, our transition to a more sustainable and scalable content marketing model is off to a good start.

Today, we have well over 1,000 sponsored update customers running campaigns just a few months after the launch of the product. Additionally, we recently began testing the beta version of our sponsored updates API designed to make it easier for customers to built content marketing campaigns directly onto the LinkedIn platform.

Within premium subscriptions, we continue to make progress, leveraging our data to optimize our offerings, improving our acquisition and on-boarding capabilities while further reducing churn. Sales solutions remains in its infancy but we continue to see strong traction on both self-serve and enterprise adoption. Enterprise customers using sales navigator have seen their teams shorten sales cycles, improve conversion rates and increase engagement with clients. While still early, we expect sales solutions will become an important long-term driver for our business.

Lastly, a few words about Talent, our top offering priority. We now have more than 4,800 employees in 26 cities around the world. As we grow, we have continually improved our ability to attract top talent to all levels of our organization and within key strategic functions such as software engineers and web developers. Our culture and values continue to be a competitive advantage in attracting business leaders who realize our vision of creating economic opportunity for every member of the global workforce.

Now, I will turn it over to Steve for a deeper dive into our operating metrics and financials.

Steven Sordello

Thanks, Jeff. To start, let me remind you that I will discuss growth rates on a year-over-year basis, unless indicated otherwise and that non-GAAP financial measures excludes stock based compensation expenses, amortization of intangibles and the tax impact of these adjustments.

Sustained investment in our engineering, product and monetization platforms once again yielded strong results in the third quarter. Product momentum drove positive growth and engagement trends, which particularly benefited online revenue performance. Member growth remained strong during the quarter, increasing to 38% year-over-year and member engagement also increased during the quarter.

As measured internally, unique visiting members grew 49% and full page views increased 72%. Desktop page view growth remained steady at 32% year-over-year relatively consistent with last quarter's growth rate. At the same time, mobile traffic continued to rise increasing to 38% of visiting members versus 25% last year.

Turning to monetization. Third quarter revenue grew 56% year-over-year to $393 million. Talent Solutions remains our largest and fastest-growing product area, increasing 62% year-over-year to $225 million representing 57% of revenue versus 55% last year. We saw ongoing momentum across both field and online channels.

Within field sales, we added over 1,700 new customers in the third quarter, bringing us to over 22,000 total customers under contract. And in general, total customer growth remained steady. Business with existing customers also showed strength in the quarter. Customer usage of Recruiter achieved material year-over-year growth as a result of an improved product experience. And seats per customer ticked up slightly despite the increased mix of smaller customers. We had a strong add-on and renewal quarter, driven by success selling a broader portfolio of products including jobs and media.

Expansion within enterprise customers has been a consistent theme for Talent Solutions, which also supported the growth of job postings on LinkedIn. In the third quarter, the number of open jobs accelerated surpassing the 300,000 mark. Since the end of 2010, we have focused on increasing jobs liquidity through the field sales channel, with enterprise customers representing nearly 90% of open jobs versus less than 50% three years ago. At the same time, the online channel again performed well where subscription growth remained steady.

With regard to Marketing Solutions, revenue grew 38% year-over-year to $89 million representing 23% of revenue versus 25% last year. We were pleased with our progress and performance in the quarter as we continue to transition the business towards content marketing. In the field sales channel, third quarter was again impacted by the transition away from the larger customer focused activity and traditional display advertising formats and towards sponsored updates. That said, growth picked up slightly relative to the second quarter.

Our self-service ad platform, LinkedIn Ads continued to form well with growth surpassing the field sales channel. We benefited from both higher inventory due to strong engagement and an increasing ECPM through improved click through rates. With regard to sponsored updates, we have been pleased with performance since the late July launch, both in terms of early customer traction and higher engagement rates versus our core display business. While the revenue base remains small, it is balanced across channel and we are seeing a majority of marketers, including field sales customers utilizing CPC pricing.

Finally, mobile is driving approximately two-thirds of sponsored updates revenue, which is driven by higher click through rates on phones and tablets. We continue to believe sponsored updates can have a meaningful contribution to our ad business in 2014, once we have all the elements in place to operate at a greater scale. Premium Subscriptions again showed solid growth, advancing 61% year-over-year to $80 million, representing 20% of revenue consistent with last year.

For the past year, the team has focused on leveraging the development environment to iterate quickly on two fronts, new customer acquisition and customer on-boarding and retention. Recent efforts here have resulted in a highest renewal levels in two years. We also continue to see steady conversion of subscribers to annual subscriptions with the [niches] 50-50, resulting in overall level of churn.

Sales Solutions, which currently under rolls under Premium Subscriptions continued to scale well on a small base, predominantly driven by the self serve online channel. At the same time, enterprise customers using the premium product have seen positive impacts to performance results, reflected by the strong level of renewals in our customer base. We remain encouraged by the long-term potential of this business.

Turning to revenue by geography, international contributed 38% of revenue versus 36% last year. In terms of channel, positive engagement trends continue to drive online revenue outperformance. The online channel contributed 42% of total revenue versus 43% last year with field sales delivering 58%.

Turning to the non-GAAP income statement, increasing skill and engagement-driven online revenue once again delivered strong profitability relative to current levels of investments.

Adjusted EBITDA was $93 million, resulting in a 24% margin versus 22% in the third quarter of last year. Depreciation and amortization totaled $34 million, lower than guidance, while stock compensation ended the quarter at $54 million, that's higher than guidance.

Before turning to net income, I want to spend a moment discussing our GAAP tax rate and expense. First, when we began scaling business globally 2009, we put in place an international tax structure to optimize our long-term tax rate. In the short-term, this strategy results in a structurally higher tax impact until we reach profitable scale outside the U.S. over the next few years.

Second, acquisitions create tax expense variances that impact our tax rate disproportionately given the current level of GAAP pre-tax profit. We saw this impact in the middle of 2012, when we accounted SlideShare, and again this quarter as we fully expensed Polson into P&L.

As a result of these factors, our tax expense exceeded our positive global pre-tax profit this quarter resulting in a 170% GAAP tax rate. Resulting GAAP loss per share was $0.03 on 113.9 million fully diluted shares versus earnings per share of $0.02 last year.

On a non-GAAP basis, net income was $47 million on a more normalized 26% tax rate, resulting in earnings per share of $0.39 119 million fully diluted shares. This compares to 25 million and $0.22 a year ago.

On the balance sheet, we exited the quarter with cash and short-term investments of $2.3 billion, which reflects a successful $1.3 billion follow-on offering in early September. We continue to have zero debt.

Operating cash flow was a record $126 million to $88 million last year. Continued investment on our first self-managed data center, which we began testing co-location operations just last week led to $83 million in CapEx, in line with our expectations. Free cash flow in the third quarter was $43 million versus $54 million last year reflective of this infrastructure investment.

We will end the call with guidance for the fourth quarter and an updated full year outlook. We expect fourth quarter revenue to range between $415 million representing $420 million, representing 37% to 38% year-over-year growth. As a result, we are increasing our full year revenue outlook upward by $35 million to approximately $1.5 billion. This represents 54% growth year-over-year, which compares favorably to our original expectations entering 2013 for mid-to-high 40% growth.

Throughout the year, we have benefited from over performance in Talent Solutions and positive engagement trends driving strong online revenue. As we enter Q4 this year, engagement with LinkedIn has never been stronger as illustrated by performance in the first three quarters. At the same time, we faced difficult growth cost relative to strong engagement growth in the fourth quarter of last year.

As you recall, at the beginning of 2012, we completed Project InVersion, which allowed us to release products more efficiently. At the end of last year, we released more new product than during any similar timeframe in the company's history and members responded the re-designed profile and homepage, the launch of Endorsements and a richer content experience including Influencers.

Relative to last year's performance, we expect this quarter sequential page view seasonality to track more closely to what we saw in fourth quarter of 2011 versus what happened last year. In 2011, we saw desktop page views decline quarter-over-quarter and we expect a similar to slightly larger decline this year. As it relates to the business, Marketing Solutions is the product line most directly connected to page views and subsequent inventory growth, with a lesser but important impact on premium subscriptions and the online portion of Talent Solutions.

For adjusted EBITDA, we expect between $90 million and $100 million in the fourth quarter, a 24% margin at the mid-point. This equates to approximately $364 million for the full-year, also a 24% margin compared to the original 23% margin expectation for the year. This reflects a more than $50 million in our full-year adjusted EBITDA guidance, based primarily on our Q3 results.

Our margin guidance reflects a balance between typically strong sequential fourth quarter revenue seasonality versus investments made throughout the year, including overall recruiting success, expanding our global facilities footprint, the new data center and of course acquisition.

For depreciation and amortization, we expect $43 million to $45 million for the fourth quarter representing approximately $136 million for the full-year. For stock compensation, we expect expense of $55 million to $57 million for the quarter representing approximately $193 million for the year. We expect GAAP taxes to likely exceed pretax income with a similar absolute dollar amount as the third quarter. On a non-GAAP basis, we expect a normal tax rate, perhaps slightly higher than the past couple of quarters.

In closing, we have invested heavily throughout the year in all of our key operating priorities. Efforts we will continue through the fourth quarter and beyond. We are excited about the growth and level of engagement on the LinkedIn platform, as well as the momentum across our three product lines. We expect a strong end to 2013 and are focused on continuing to create long-term value for both members and customers.

Thank you for your time and we will now take questions.

Question-and-Answer Session


(Operator Instructions). Our first question comes from Gene Munster from Piper Jaffray.

Gene Munster - Piper Jaffray

Good afternoon. Okay, just I know you talked about some -

Jeff Weiner


Gene Munster - Piper Jaffray

Yes, I am here.

Jeff Weiner

Your phone is going in and out, Gene.

Gene Munster - Piper Jaffray

Okay, I was saying over here. Congratulations and I know you talked about this in the prepared remarks but, obviously, all the other internet companies are focused on the growth in mobile. At what point do you feel like mobile is going to be a bigger part of the story here? Then a follow-up question.

Jeff Weiner

Sure. So mobile continues to be our fastest growing product or service and that's been the case now for some time. We expect that will continue to be the case at least for the foreseeable future. We have about 8% of unique visits coming to LinkedIn on a weekly basis about two and a half years ago. That number now stands at 38%. We think that number is continue to expand and that sometime next year, it wouldn't surprise us if we exceeded 50% which internally we refer to as our mobile moment and that would be for LinkedIn on a global basis. We have already seen a number of countries, for example, Singapore, Turkey exceeding 50% and there is a number of additional countries that are knocking on the door of their mobile moment. But we continue to see a strong future for LinkedIn on mobile channels.

Gene Munster - Piper Jaffray

Okay, great. My follow-up question. This is around the marketing services module. It is about 20% better than what we were thinking. I know there has been some lumpiness in there, but anything specific that we should think about in terms of how to model that segment going forward?

Steven Sordello

Yes, Gene. This is Steve. So we did have a solid quarter for Marketing Solutions, actually a little bit acceleration in terms of the year-on-year growth to 38%, I would say primarily engagement driven. We had higher engagement than we expected online, was stronger. We are continuing this transition of display towards content marketing. So that is a factor as we go into the fourth quarter.

Then the other elements of what I spoke about a little bit ago in terms of some of the year-on-year growth trajectory relative to comps last year be impacted. But we are encouraged by the transition in sponsored updates. We were 1,000 customers today and that's growing very nicely. There is strong engagement.

As we mentioned, two thirds of that is mobile, due to higher click through rates on phones and tablets. I do want to highlight that, of that sponsored update revenue is primarily driven on our homepage right now, which is about 20% to 25% of overall traffic, so over time that could expand primarily for homepage right now, so I think we are doing well Marketing Solutions, but we are definitely still in a transition period. Last year this time, we were still selling some of the larger one-off deals and trying to change [things] away from those towards sponsored content.


Thank you. Our next question comes from Brian Nowak from Susquehanna.

Brian Nowak - Susquehanna

I have two please. Recognizing you are still in the transition period towards sponsored content, but how big is that sponsored content revenue now? Then as we are thinking about long-term as you rollout sort of more automated style of ad selling, can you help us better understand kind of the incremental margins on the ad dollars that would flow through an auction or automated system compared to your traditional offline selling? Thanks.

Jeff Weiner

The percentage of our overall Marketing Solutions revenue is still small. It's still at a level, where we want to hold back on reporting. This thing really just launched at the end of July. As we mentioned, we have been gradually rolling it out, so it's still a little too early to break it out as a separate kind of revenue line item at this point.

In terms of the margin profile, this product is sold - it's roughly 50-50 in terms of channel between both through the field today and sold online and those margin characteristics are similar to what we see in the other side of the business in terms of the mix of field to that [say] LinkedIn Ads on the self-serve platform, so similar characteristics depending on the channel, so it will somewhat depend on what channel grows and more quickly over time.


Thank you. Our next question comes from Heath Terry from Goldman Sachs.

Heath Terry - Goldman Sachs

Great. Thank you. I was wondering if could give us a sense. As you look at or talk about the 38% of your traffic that's mobile. Is there any sense that you can talk about. I realize Sponsored Updates early. What percentage of inventory is currently being monetized through the marketing channel?

Then also to the extent you we saw a really strong premium services number, our prescriptions number last quarter that you mentioned Sales Navigator relationship to. Any indication that you can give us and sort of the relative impact that that had in this quarter versus last.

Jeff Weiner

For the percentage of inventory, what I would say relative to homepage traffic, so 20% to 25%, it pretty much nears both desktop and on the mobile, the percentage of that homepage, so when you think about the inventory available against the 38% is that same range of the overall pages view traffic.

Then your second question was related to Sales Navigator?

Heath Terry - Goldman Sachs

Right. Sales Navigator and just the incremental impact this quarter versus last?

Jeff Weiner

That business relatively is still in its early days, still primarily online. Online is about 3.5 times what field sales today in terms of revenue and continue to increase. It's about up 2.5 times year-on-year in terms of new subs.

On the field sales side, it's earlier. The customers are growing nicely. On a sequential basis, we are up about 30%, in terms of new customers which is good sign and I think also encouraging is the reaction we are hearing customers in terms of their improvement in ROI, conversion rate, a faster close times and we are seeing very solid renewal rates.

We talked historically about this being on a similar cycle to our recruiter with Talent Solutions in terms of initially rolling it out of the subscription product and then differentiating as a solution were still evolving the product.

In terms of the overall theme subscriptions it's growing as a percentage, but we are still going to hold in terms of deploying this as a revenue line item, short lead of certain scale as well as certain development in terms of the product rollout, but it is growing rapidly again off the small base.


Thank you. Our next question comes from Neil Doshi from CRT Capital.

Neil Doshi - CRT Capital

Just piggybacking off with the Sales Navigator question. Maybe can you just help us think about where you are in that development process to really ramp up that Sales Navigator product?

Then just, I know you had a little bit talk about the economic graphs in the past. Any thoughts there as to what more LinkedIn needs to do to really build out the economic graph and ultimately you can monetize that? Thanks.

Jeff Weiner

Yes. So Steve, do you want to start on the first one?

Steven Sordello

I am sure. So the development cycle. As you know, we talked a lot about a members oriented approach with the Sales Solutions product theme that has differentiated member experience relative to our recruiting product. We started as a subscription. That has been getting solid adoption. The ultimate goal is, which I would say, some time next year as to differentiate into more of a standalone type of product. We haven't announced any further timing along that but I would expect some time next year that to happen. We continue to ramp the sales force. It ramps on a handful to north of 50 sales people that are focused on this product but really still in early days in terms the field sales traction.

Jeff Weiner

I think just to add to Steve's point there. The model to take into consideration, in terms of the rollout of Sales Navigator functionality will most likely look like the one we have used in Talent Solutions, starting with a subscription package and then moving into our flagship recruiter product. And at some point next year, as Steve said, we would like to further that evolution and we want to keep building and developing towards that goal to have something as robust as recruiter, ultimately. Whether or not that happens, in terms of a specific timetable, we are going to continue to evolve that over time.

With regard to the economic graph, to remind some of the folks on the call who are unfamiliar with the concept, the economic graph is ultimately our longer term vision. It's mapping the global economy and digitally representing every economic opportunity, both full-time and temporary. Every skill is required to obtain one of those opportunities. A profile for every company in the world. A profile or page presence for every higher education organization. A professional profile for every member of the 3 billion plus people in the global workforce. Then to overlay the professionally relevant knowledge and information possessed by each of those individuals, companies and universities to the extent they want to share that information. Then for us to step back and allow each of those nodes on their scrap will map to connect to where it could best be value generating and enable capital, all forms of capital, intellectual capital, working capital, human capital to go to where it can be best utilized and leveraged.

If you think about the building blocks for that economic graph, today this isn't science fiction. We have started to lay down foundations really across the board. It is just a question of scale and timing. And as an example of areas we would like to continue to build out to fully realize the potential of that graph, we started with the first dimension in terms of mapping every economic opportunity in the world, both full-time and temporary. Today we are focused on full-time opportunities, largely oriented around knowledge workers and high value professional roles and over time you could certainly expect that to expand.

Then similarly with regard to the overlay of professionally relevant knowledge, today we have got products like LinkedIn Today, LinkedIn Influencers, which is serving a very small group of professional luminaries, roughly 500 folks. We have got LinkedIn groups, products liked SlideShare which we have acquired and Pulse and we would like to also extend the ability for more people to be able to share professionally relevant knowledge.

So those are the two examples of where we would like to continue to build out and invest for the future, but we are excited about the economic graph. We are excited about making it a reality and we are looking for it operationalizing it.


Thank you, and our next question comes from Scott Devitt from Morgan Stanley.

Scott Devitt - Morgan Stanley

Hi, thanks. Back in February, you had mentioned a price increase for job slots in the Recruiter product and I was just wondering how much of an impact that may have on 4Q Talent Solutions, given that we are approaching another renewal cycle? And if there are any products, add-on products for LCS customers that you expect get more traction on during the renewal cycle in 4Q relative to the prior year?

Then secondly, in the Mobile Day presentation, you had mentioned more than 50%/of sponsored update revenue coming from mobile. And I was just wondering what's driving that? Is it ad loads or better engagement? Thanks.

Steven Sordello

Scott, this is Steve. I will take the first part. As you call, we announced the mid-single digit price increase rolling out beginning in Q2, and that was for select regions for recruiter and job slots. Of the customers impacted by that over the first two quarters since then about 40% have been impacted. We have another 40% in Q4, which is our largest renewal quarter. Most of the revenue coming off of this price increase will be reflected in 2014, given the revenue recognition.

So far we are not seeing any noticeable impact in terms of churn or impact on new customer adoption, which is a good thing, but I think in a broader context if you look at our ARPU and the strength of ARPU pricing has had a minimal impact on that given a level and kind of how broadly it was rolled out, which is really driving right now is larger deal outside of that front and being able to sell a broader product portfolio, including recruitment media jobs, things of that nature upfront, so pricing has played a role in it, but it's really the whole solution that's been pulling off the ARPU.

Jeff Weiner

Scott, on the composition of Sponsored Updates revenue and over half of that going towards mobile, I think that's a byproduct of at least two factors. One is the user experience and the others user behavior.

In terms of the user experience, the content that is generated within our mobile feed is done so in a very focused way that creates a different experience when compared to the desktop, where there more options and choices for members, say, on the LinkedIn homepage.

Then in terms of user behavior, we found that LinkedIn members who are accessing LinkedIn via both, mobile and desktop tend to be about two to two-and-half times more accurate on LinkedIn and we see that not only with sponsored updates, but also a number of other products and services.


Thank you. Our next question comes from James Lee from CLSA.

James Lee - CLSA

Thanks for taking my question. Two questions here. One is about mobile advertising. How should we think about you balancing the user experience versus monetization? My question is surrounding do you have any plan changing the interface, your newsfeed to be more curated or do you want to leave it open and what are doing to (Inaudible) add a little here.

Second question regarding China, can you help us understand the where you are in that process? How comfortable you are with the regulatory risk when it comes to social media and what are you doing to angle contribution to the Chinese employment economy? Thank you.

Jeff Weiner

On the former with regard to the form of the feed and the Sponsor Updates experience, we are investing heavily in relevant design across the board at LinkedIn not just with regard to sponsored updates, but the feed more generally speaking and as we have seen more and more liquidity, more and more content flowing through the member homepage and their feed, we want to make sure that we are surfacing the most valuable, the most relevant content for them, so we are not just leveraging machine learning there, we also do average [curation].

For example at the top of the LinkedIn homepage, on the desktop, we are applying both, our editorial team and some of their selections along with algorithmically generated results and we are taking the best of both of those worlds. The other factor, of course, would be social signals in terms of what content is proving to be the most popular on LinkedIn, content that's being shared by virtue of your first-degree connections et cetera, so we are going to continue to investing relevancy and we think there is some strong opportunities there to continue to create value.

With regard to China, we are now north of 3 million members in China. We remain in English today, and as we said in the past, we want to be very thoughtful about the way in which we localize. Once we were to offer LinkedIn in China on a localized basis in terms of language, we want to make sure that we really thought through all of the subsequent dynamics and what that presence would mean, so we are pleased with the uptake of LinkedIn in China thus far to-date. We think it's a very exciting opportunity when you think about $600 million knowledge workers in the world today and you look at the number of those people living in China both, students and professionals, it's a very significant opportunity and one we are going to continue to pursue as thoughtfully as possible.


Thank you. Our next question comes from Brian Pitz from Jefferies.

Brian Pitz - Jefferies

Sorry if I missed this, but can you talk to the mix between direct sales and self-serve on marketing? Does any of the inventory flow through an ad exchange and would it make sense for you guys to launch your own ad exchange at some point? Just separately, any color on CPM trends in aggregates for the business? Thanks.

Jeff Weiner

So, in this particular quarter, most of the business is still on the field sales side in the aggregate. The online self-serve piece grew at a faster rate, off of a smaller base. In terms of CPMs, they were strong in the quarter. As you know, we are coming up already fairly high CPM, given the demographics of our user base. But they were very strong in the quarter sell through rates partially impacted by this transition to sponsored updates but they were, despite that, up versus last quarter as well. So pretty healthy quarter in Marketing Solutions, despite some of the transitional activity towards sponsored content.

Brian Pitz - Jefferies

Great. Thanks.


Thank you, and our next question comes from Mark Zgutowicz from Northland Capital.

Mark Zgutowicz - Northland Capital

Hi, guys. Steve, just a question on the deferred balance and maybe more specifically, could you speak to billings growth? I am just trying to get a sense of how it may or may not be a leading indicator for Talent Solutions. Just noticed over the last couple of quarters deferred has slowed a little bit and maybe you can help me out with the billings growth which is obviously consistent with that.

Steven Sordello

Yes. So our deferred revenue balance fluctuates quarterly based on seasonality. It grew on a percentage basis at 61% which was in a faster than the 56% revenue growth. You have got to understand there is different business lines here. There is Talent Solutions. There is also premium subscriptions. So there is different elements that are impacting deferred revenue.

What we typically see is an increase in deferred revenue in Q4 and Q1 in terms of a seasonal basis because the gist of the bookings we ramp into Q4 and the increase in billing in Q4 and into Q1. So that's a typical cycle we see but overall in the quarter, deferred, still growing at a faster rate than revenue. It's not a complete predictor of future revenue. Again, there is a lot of ins and outs. For example, premium subscribers moving from monthly to annual subscription has impact. So we don't talk too much about it but it did grow faster in this quarter.


Thank you. Our next question comes from Douglas Anmuth from JPMorgan.

Douglas Anmuth - JPMorgan

Thanks for taking the question. Just wanted to ask you a question about two products. First, on University Pages. You mentioned, I think 1,500 pages so far in two months. Can you give us a sense of what you think that product looks like a couple years out? And then also just more recently on the LinkedIn Intro launch. Can you give us a little color on early feedback so far? And can you address just any of the concerns about the product accessing people's emails? Thanks.

Jeff Weiner

So, on the student front, the University Pages launch creates a presence for a university. So they can connect with prospective students and current students, graduates, alumni. And when combined with our Alumni tool, that enables any LinkedIn member to go into a particular school and see what all the former alumni of the school have gone on to do, starting with their majors while they were in school to get a real sense of outcomes. And for prospective students trying to embark on a career path, it's really valuable information.

So going forward, I would look for a more in the way of connecting students, prospective students, existing students, new college grads with jobs, with opportunities and to make sure that we can provide them all the information they need to pursue the right career path. So there is a really rich roadmap there and we are looking forward to continuing to rollout that functionality.

With regard to LinkedIn Intro. This is a product we introduced and announced last week. And if you look at the history of the inbox, despite the fact that there has been a lot of investment in communication and collaboration tools, the structure of the inbox has largely remained the same. And this is an area where professionals and certainly our members tend to spend a disproportion amount of their time. So leveraging LinkedIn's position as the professional profile of record.

We saw there was an opportunity to integrate that profile information into the e-mail itself and it really makes a difference. We have been using the product internally LinkedIn now for several months. Now that we have launched it, the folks have actually utilized the product are getting great results and see a lot of value in. We recognized the current climate and the sensitivity around products like this, so we worked very hard to ensure that this particular implementation is as secure as possible.


Thank you. Our next question comes from Justin Post from Merrill Lynch.

Justin Post - Merrill Lynch

On the Sales Navigator, have you got any feedback from the users who have been involved or have been contacted through the trials? Then secondly, is that a product that could start to be additive to revenues in any small material way in '14 or '15? How do you think revenue contribution? Thanks.

Jeff Weiner

Yes. Actually that is where a lot of the good news has been, we have seen new customer reaction to the product. We have taken a gradual rollout of this product and really actually learned a lot from interacting with the customers. This is a higher volume, lower price point sale than our recruiter product and sales is a different function than recruiting within companies, so we are starting to see results of that.

I mentioned, our renewal rate has been very healthy and that's an indication churn has been very low and we are starting to sign bigger and bigger deals on the field sales side. Still the majority of it is online, but the field sales side is growing very, very nicely.

In terms of it being an added revenue line, you know, we envision this being our third line of business. It makes a lot of sense. Subscription is really more of a channel that feeds through all of these different revenue product areas.

I think, we are measuring that both in terms of absolute percentage of sales, but also training it along the evolution of the product itself, so it very well could be next year or maybe year when we start to roll this out and separate out revenue separate revenue line and we haven't decided on yet, but it has the potential.

Justin Post - Merrill Lynch

Okay. Whether or not it's a revenue line? I mean, is it contributing to revenues today in any in any material way or could it contribute to total revenues next year?

Jeff Weiner

Yes. We believe this is going to continue to ramp. It's still sub-10% of our revenue obviously, but it is growing faster than other revenue streams. Then when you look at the market overall, there is many more sales people on LinkedIn than recruiters, so we do believe this is a large market opportunity.


Thank you.

Jeff Weiner

Okay. Thank you, everyone, for joining this quarter and we look forward to talking to you next quarter. Take care.


Ladies and gentlemen, thank you for participating in today's conference. This concludes our program for today. You may all disconnect and have a wonderful day.

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