Seeking Alpha
Growth, long/short equity, research analyst, tech
Profile| Send Message|
( followers)  

Catering to 277 million visitors worldwide with 187 million monthly unique visitors, LinkedIn Corporation (NYSE:LNKD) recently announced its result for the fourth quarter of fiscal year 2013. Revenue for the fourth quarter increased 47 percent to $447.2 million from $303.6 million in the fourth quarter of the year 2012. Fourth quarter net income was $3.8 million compared to $11.5 million for the fourth quarter of the year 2012. The adjusted EBITDA was $111.4 million which was 25 percent of revenue for the fourth quarter of 2013. GAAP diluted EPS for the fourth quarter underwent a decrease of $0.07 compared to the GAAP diluted EPS of $0.10 for the fourth quarter of last year. Non-GAAP diluted EPS for the fourth quarter stood at $0.39 compared to the non-GAAP diluted EPS of $0.35 for the fourth quarter of 2012.

(click to enlarge)

(click to enlarge)

Source: Q4 Earnings

Premium subscriptions

Premium subscriptions generated revenues of $88.1 million during the fourth quarter of fiscal year 2013 which was 48 percent higher than the same period last year. In 2012 and 2013, premium subscriptions represented 20 percent of the total revenue in the fourth quarter.

Talent Solutions

Talent solutions fetched revenues of $245.6 million during the fourth quarter which was 53 percent higher than the fourth quarter of 2012.

Marketing Solutions

Marketing solutions produced revenues of $113.5 million resulting in an increase of 36 percent compared to the fourth quarter of 2012. It represented 25 percent of the total revenue in the fourth quarter of 2013 while marketing solutions represented 27 percent of total revenue in the fourth quarter of 2012.

(click to enlarge)

Source: Q4 Earnings

In the fourth quarter of 2013, LinkedIn launched numerous products including a new Pulse app and re-imagined an integrated LinkedIn iPad app to deliver the most relevant professional insights and news. Now 41 percent of traffic to LinkedIn comes from mobile devices, and mobile apps are driving deeper mobile engagements. With the launch of Showcase pages, the company widened its marketing solutions offerings and provided the most effective tool to B2B marketers to connect their brands with professionals.

The U.S. fetched 61 percent of the revenue for the fourth quarter compared to 62 percent in fourth quarter of 2012. The EMEA region fetched 24 percent of the revenue for the fourth quarter of 2013 compared to 23 percent during the same period last year. APAC and Other Americas remained flat and produced 8 percent and 7 percent of revenue, respectively.

(click to enlarge)

Source: Q4 Earnings

LinkedIn provided guidance for the first quarter and the full year of 2014. Revenue for the first quarter of 2014 is estimated to be in the range of $455-$460 million. Adjusted EBITDA for the quarter is projected to be in the range of $106-$108 million. The company estimates depreciation and amortization for the quarter to be around $48 million while stock-based compensation is likely to be around $68 million.

Revenue for the full year of 2014 is expected to stay between $2.02 billion and $2.05 billion. Adjusted EBITDA for the year is estimated to be around $490 million. Depreciation and amortization for the full year is likely to be around $225 million while stock-based compensation for the year is approximated at $325 million.

My Stance

In my opinion, the company's results are not that bad. Sales in the period jumped 47 percent exceeding the analysts' estimates, according to data compiled by Bloomberg. Membership increased 37 percent to 277 million members from 202 million a year ago when number of users increased by 39 percent. Sales in LinkedIn's main business, talent solutions, increased 53 percent to $245.6 million compared to the growth of 90 percent in the same period last year. Internationally, LinkedIn faces competition from Viadeo in France and Xing in Germany. Its sales increased 54 percent to $176.1 million in international markets and accounted for almost 39 percent of revenue, up 1 percent from a year earlier.

LinkedIn's Strategic Wisdom

The acquisition of Bright by LinkedIn is valued at approximately $120 million and comprises of approximately 27 percent cash and approximately 73 percent stock. The transaction is estimated to be completed during the first quarter of 2014. According to Blake Harper, an analyst at Wunderlich Securities, the acquisition of Bright will add about $25 million in operating expenses this year and brings with it no current revenue.

In my opinion, this deal makes sense strategically. While acquiring a potential competitive threat, this deal should also help LinkedIn to build its economic graph.

CEO Jeff Weiner said on a conference call that expansion in China is a key section of LinkedIn's growth strategy and LinkedIn could establish a joint venture in China as a way to crack the market given the challenges that the U.S. internet services have had there.

Almost one in five of the world's student and knowledge workers live in China. LinkedIn has 4 million members in China. With a population of around 1.35 billion, China is more than quadruple the size of the U.S. and this fact reveals the enormous potential for LinkedIn in Chinese market.

Final Remarks

The company is wisely making several large investments in areas like improvement of recruiter and sales solutions. The building of another subscription product, Sponsored Updates, is part of this strategy. The acquisition of matching technology company Bright for $120 million and expansion in China will negatively affect the company's 2014 results but I think the company will benefit in 2015 and beyond. Incorporating all the facts and figures in my analysis I have concluded that LinkedIn is a good choice for long-term investment hence my recommendation is buy.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: The article has been written by a Blackstone Equity Research research analyst. Blackstone Equity Research is not receiving compensation for it (other than from Seeking Alpha). Blackstone Equity Research has no business relationship with any company whose stock is mentioned in this article

Source: LinkedIn Is A Good Long-Term Choice