LinkedIn: Unlocking New Growth

Aug. 5.14 | About: LinkedIn (LNKD)

Summary

LinkedIn issued strong full-year guidance, which is of note because the company is known for conservative outlooks.

Total membership increased to 322 million with total page views increasing 22% to 25 billion and mobile usage nearing 50%.

Acquisitions have been strong with future monetization of Newle and Bizo and the further increase of customer experience.

LinkedIn (NYSE:LNKD), the world's largest professional network, released its Q2 2014 results post market hours on July 31, 2014.

The quarter saw key metrics like total membership increase to 322 million with total page views increasing 22%, to 25 billion, and mobile usage nearing 50%.

As expected, the company maintained its reputation of blowing away analyst estimates, as it beat street expectations with revenue increasing 47% to $533.9 million and EPS increasing to $0.51 as against expectation of $0.39.

However, one thing was different this time, as the company issued a bullish guidance for the next quarter. LinkedIn is renowned for issuing conservative guidance despite beating analyst estimates.

The full-year guidance has now gone up to revenue of $2.15 billion and EPS of $1.80. After plunging to trade at about $140 per share in May, LinkedIn is now up more than 40% as it closed at $201 on August 1.

Massive improvement in top-line revenue

LinkedIn has three revenue streams - Talent Solutions, which represent revenue from the corporate recruitment firms and other companies using LinkedIn for recruitment activities; Marketing Solutions that included revenue from content-based ads and other display features; and Premium Subscription revenue from premium users.

In Q2 2014, Talent Solutions contributed 60% of total revenue, Marketing Solutions 20% and Premium Subscriptions contributed 20%. All three streams showed strong numbers in Q2 2014 with reported year-on-year growth of 49%, 36% and 46%, respectively.

The massive increment in revenues from the three main sources is a testament to the company's ability to grow revenues, and this is what promises sustainable growth for the short-term. This is why the company's stock appears to be back on a rally following a recent plunge.

User Published posts to drive ad revenue

One of the biggest fears associated with LinkedIn has been its ability to broaden its revenue sources. The company has recently taken drastic measures in bid to increase engagement levels by allowing members to publish posts on their profiles.

The company has also continued its development on the types of posts that users can publish, including photos, videos and presentations, which again will serve a great deal towards increasing engagement levels. This is why the company has posted such a massive jump in engagement as page views increased by 22% year-over-year.

Many people have welcomed the move positively; they use the platform to promote various services and products within their posts.

This is definitely going to improve engagement levels, but the question remains on how LinkedIn plans to make money from it. One possible way though is through its advertising network in the marketing segment.

Nonetheless, as this move is still at its early stages with adoption picking up, the real value is likely to come in the future. Currently, only the influencers get significant number of views per post.

Key developments for enhanced monetization

LinkedIn has been using its cash of $645 million wisely in the recent past it seeks to increase monetization of its rising user base.

Newsle will be massive for LinkedIn

It acquired Newsle, a startup focusing on displaying newsfeed about people in a person's professional network as well as social network. The company discussed Newsle and how it sees its success,

"LinkedIn and Newsle share a common goal: We both want to provide professional insights that make you better at what you do. For example, knowing more about the people in your network - like when they're mentioned in the news - can surface relevant insights that help you hit your next meeting with them out of the park."

Generally, the company is trying to boost the level of interaction between members, but on the other hand, it will also be providing advertisers with more accurate information about their prospective customers. Note that, the members are composed of both customers and advertisers, and hence this will help them in executing their business transactions - those meetings won't be social gatherings.

Additionally, LinkedIn gives premium account holders exclusive access to some of the information about its members. Therefore, Newsle is bound to boost the amount of information the premium subscribers can get access to, which again makes it more enticing to have premium membership.

LinkedIn is buying Bizo's B2B technology

Last week, LinkedIn announced the acquisition of Bizo, a B2B marketer, for $175 million primarily for the site's technology and applications.

LinkedIn is not acquiring Bizo primarily for the amount of revenue the B2B marketer generates, but rather for its technology. B2B marketers use Bizo to target prospects within various professional segments, and nurture them at every stage of their sales and marketing funnel.

"It's exciting for us to bring Bizo's expertise and technology into our ecosystem," said Deep Nishar, LinkedIn's SVP of Product and User Experience. "Our ability to integrate their B2B solutions with our content marketing products will enable us to become the most effective platform for B2B marketers to engage professionals."

Fueled by proprietary data management and targeting technology, Bizo's platform enables precise and measurable multi-channel marketing programs. Since 2008, the company has been helping brands meet their marketing objectives by getting the right message in front of the right audiences on the web.

Furthermore, Bizo is also expected to add $50 million a year to LinkedIn after completion of acquisition in Q3 2014.

LinkedIn, like its peers Facebook (NASDAQ:FB) and Twitter (NYSE:TWTR), is focusing on improving the relevancy of its newsfeed using analytics.

It has also introduced new features in its mobile app, improving mobile access rate to 43% of its total members in July 2014 and the penetration is expected to cross 50% in Q3 2014.

This move could also be interpreted as step towards emulating Facebook's ability to utilize user information for purposes of revenue generation.

Facebook ad network has been one of the revolutionary achievements by the social media giant with regard to targeted ads. If LinkedIn can begin taking advantage of its growing user base in this respect, then it stands to boost its revenue significantly in the long-term.

Conclusion

LinkedIn's total revenue has grown from $522 million in FY2011 to $1.5 billion in FY2013 (ended in December 2013). The net profit has also more than doubled from $12 million in FY2011 to $26 million in FY2013. The company slipped marginally in Q1 2014 with a net loss of $13 million due to higher operating expenses.

The company has undertaken many strategic initiatives to further increase members as well as engagement. It introduced a professional publishing platform to increase user engagement and made its foray into the Chinese market in Q1 2014. China remains largely unexploited and could serve as one of the main revenue drivers in the next few years.

The stock price of LinkedIn almost doubled to close at $200 by end of 2013 starting from $110 in beginning of the year. The marginal deceleration in revenue and profits in Q1 2014 brought the price down to about $140 levels, but now with the growth momentum back on track, the price is already zooming past $200 level.

Now, with FY2014 revenue expectation of $2,150 million and sustainable growth more or less guaranteed with recent acquisitions, LinkedIn has gone on to guide more optimistically than usual.

The company seems primed to unlock new growth channels as the social media market continues to attract more advertisers. More importantly, the company's top line has continued to show impressive growth rates, which is crucial for positive investor sentiment.

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.