The number of unique visitors is not only a measure of LinkedIn‘s (NYSE:LNKD) popularity and adoption, but also directly impacts its ad and marketing revenues, which constitute roughly 20% of its value in our model. Additionally, growth in the number of unique visitors will translate into growth in premium subscriptions, which also account for another 20% of LinkedIn’s value according to our estimates. Having a larger user base will attract more corporations and allow for greater negotiating power for LinkedIn when striking corporate deals. We currently forecast the company’s average monthly unique visitors to reach past 500 million by 2020. Let’s take a look at how it can achieve this.
Our price estimate for LinkedIn stands at $141, implying a discount of about 15-20% to the market price.
Evolution Of Features Driving User Engagement
LinkedIn has introduced several product enhancements in recent years including endorsements, redesigned company pages, launching the website in local languages, new profile features, notifications, the ability to follow thought leaders and sponsored jobs to help companies promote key positions to the right people. The company has also been pushing a relatively nascent feature, Sales Navigator, and the initial results have been promising. Sales Navigator can be a useful product for LinkedIn as it helps sales professionals in better targeting customers, building relationships and marketing their products. The search includes some advanced features that are not available to others and professionals can establish alerts based on these. The essence is that it will help companies in selling their products to the right individuals, based on their preferences, age, location, etc. Sales Navigator can also be integrated with customer relationship management (CRM) software that companies already use, which gives it a great advantage and appeal.
Other useful features that marked LinkedIn’s early expansion include LinkedIn Today, LinkedIn Swarm and LinkedIn Skill. LinkedIn Today is a feature that offers social news platform for professionals delivering top stories. The platform aggregates the most shared news from professionals in an individual’s network. LinkedIn Swarm was introduced in January 2011, and tries to answer the analytic question of what is popular and what is the most searched. It is a tool that showcases the most recent and popular companies as well as searches for titles. Title searches within LinkedIn are not dissimilar to queries on Google (NASDAQ:GOOG) or Bing from Microsoft (NASDAQ:MSFT). Additionally, LinkedIn Skill enables a closer look at data about individuals’ skills. One can see a particular skill for the person, and how the landscape of skills and expertise is changing over time.
Focus On Mobile To Tap The Changing Landscape Of Information Consumption
Global smartphone shipments are on the rise and totaled roughly 968 million for 2013. Smartphone sales jumped 36% in Q4 2013 and constituted roughly 57.6% of total mobile phone sales as compared to 44% during the same period a year ago. Developing economies, including Latin America, the Middle East and Africa, Asia-Pacific and Eastern Europe, saw their smartphones sales surge by over 50% during the fourth quarter, contributing most to the global growth. IDC forecasts smartphone shipments to grow to 2.3 billion by 2017, and as seen in the fourth quarter of 2013, much of this growth will come from emerging markets.
LinkedIn has invested in tapping this medium of data consumption. The mobile platform accounted for roughly 41% of LinkedIn’s unique visitors in Q4 2013, up from 8% in Q1 2011. In some markets such as Turkey and Singapore, this percentage has crossed 50%. For many companies reliant on advertising, mobile growth has typically resulted in a slowdown in the revenue growth. This could also happen for LinkedIn, since a notable portion of its business is ad-based. In addition, the paid services will not be as attractive on mobile as on desktop unless all the core features are fully implemented. However, the company has been working hard in this area and has launched Recruiter Mobile and Mobile Work With Us features to target passive candidates. Overall in 2013, it rolled out new versions of its mobile app portfolio, extending beyond core app experience by launching dedicated apps for recruiter, pulse and contacts.
Global Knowledge Workers Can Grow Over 1 Billion In the Next Few Years
LinkedIn has stated that there are roughly 140 million knowledge workers in China. This amounts to approximately 10% of Chinese population. If we apply the same percentage to global population, we get more than 700 million knowledge workers worldwide. While developing and underdeveloped markets are likely to have a lower percentage of their population qualifying as knowledge workers, the figure for developed economies of North America, Europe, Japan, Australia and New Zealand is likely to be much higher. Back in 2010, Microsoft stated that there were 500 million knowledge workers globally. Considering this figure and our current estimate, we conclude that this base of professionals has grown at a compounded annual growth rate (CAGR) of 15% over the past three years. Even if we assume that over the next seven years the figure increases at a CAGR of 7.5% (half of historical rate), we will have roughly 1.23 billion knowledge workers by 2020. If LinkedIn can grab 40% of this market, it can reach 500 million unique visitors. This may not be outrageous to think because the company has virtually no direct competitor.
Disclosure: No positions