Is LinkedIn's Turnaround A Possibility Or A Pipe Dream?

| About: LinkedIn (LNKD)


LinkedIn has been beaten down badly this year as it is facing intense competition from the likes of Facebook.

LinkedIn, however, is equipping itself with new features to gain traction and deliver improvements in the business.

LinkedIn's earnings are expected to grow at a robust pace in the next five years, so investors should think of capitalizing on its pullback.

Online professional network LinkedIn (NYSE:LNKD) is having a bad year so far. The stock has lost 27% of its value so far in 2014, despite reporting rapid growth. It looks like intense competition from the likes of Facebook (NASDAQ:FB) in the social media space has hurt LinkedIn. In fact, according to a study, businesses spend 41% of their social advertising budget on Facebook, while LinkedIn isn't even close at 18%. However, it cannot be denied that LinkedIn is making some impressive moves to grow its business, which is why it might be a good idea to capitalize on the stock's drop by buying more shares.

Trying to improve

LinkedIn is remodeling itself to strengthen its portfolio. The company has been experiencing strong revenue growth in segments such as talent solutions, marketing solutions, premium solutions, and sales solution, and it is intent on taking this momentum forward.

For example, LinkedIn's talent solutions business has gained strong traction in the market with frequent product innovations, empowering customers with quality services. The company has introduced a new version of its flagship recruiter platform, incorporating a number of features that are aimed at mobilizing the traditionally desktop-bound recruiting process.

In addition, LinkedIn has introduced a redesigned iPad app, and a new Pulse app configured with LinkedIn that will help the company deliver recent news bites, events, and professional insights to users, leading to better engagement. The company expects to generate more revenue from these new features.

A key acquisition

Earlier this year, LinkedIn acquired job search startup for $120 million. This move should help LinkedIn improve its talent solutions segment further. As reported by Tech Times:

"'s technology uses a scoring mechanism, which quickly shows employers and job seekers how well they match. LinkedIn will be able to use Bright's technology to update its applicant suggestions for employers seeking to hire and also make the jobs suggested for prospective applicants more relevant to its users.

LinkedIn may also be able to take advantage of Bright's matching feature called the "Bright Score," which takes several variables into account and saves precious time for employers." possesses data insights, data driven matching technology, machine learning algorithm, and domain expertise. LinkedIn can use this technology to connect professionals and employers in a more efficient way.

Improving user and advertiser experience

On the other hand, LinkedIn has also bolstered its marketing solutions segment with sponsored updates. The company now claims to possess a sustainable and scalable content marketing model. Moreover, LinkedIn is continuously planning to enhance its sponsored update API program, and is strategically approaching various agency partners to enhance its performance in this segment.

To improve engagement, LinkedIn recently launched showcase pages to share content and opportunities for specific brands and products. The showcase pages will provide both job seekers and employers with specific job requirements amid diversified job profiles. Thus, these pages will enable companies to pinpoint different prospects, and thereby build a good relationship and get the right resource.

LinkedIn is also investing in its sales solutions segment as it sees it as one of its key growth drivers. Its Sales Navigator tool has already gained solid traction in the market. It is of particular use in business to business marketing, as explained in an article:

"For B2B sales professionals, LinkedIn's Sales Navigator is an especially useful tool as it allows users to extensively search LinkedIn's vast network, identify and connect with prospects and pitch them on their products or services.

Top LinkedIn sellers are skilled users of Lead Builder, a premium tool from LinkedIn that allows you to create and save prospect lists using focused search filters such as seniority level, company size, interests and years of experience. LinkedIn claims that, among sales reps who use LinkedIn in their sales process, those who use Lead Builder have a 44 percent higher win rate than those who use only the free account."

Thus, the company is making a number of moves to increase user engagement on its platform, which should ultimately lead to growth in advertising revenue.

Valuation and more

However, LinkedIn's valuation doesn't appear favorable. As the company is still not profitable on a GAAP basis, it does not have a trailing P/E. However, its forward P/E is expensive at almost 63. But, LinkedIn is expected to see tremendous growth in the future. According to estimates, LinkedIn's earnings are expected to grow at a tremendous pace of 34.5% for the next five years, way ahead of the 19.8% industry average.

Additionally, it has a strong balance sheet with no debt and $2.3 billion in cash. This means that LinkedIn can continue innovating and acquire more companies with the available cash as it doesn't have any debt obligations. So, investors should think of making the most of LinkedIn's drop and invest in the stock as it looks well-positioned for the long run.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.