LinkedIn: Why Monetization Is Key

| About: LinkedIn (LNKD)

One of the biggest gainers on Friday was Linkedin (NYSE:LNKD), which closed the day 18% higher at $90 a share after a good set of fourth quarter figures. The company, which went public about 9 months ago, closed above $100 in its first weeks after going public but fell back to $60 in December after concerns over intensified competition from Facebook and slower revenue growth.
Investors were particularly focused on headline revenue growth heading into Friday's report, to see if the disappointing third quarter report was a one-off event or signs of more troubles ahead.

Fourth quarter earnings
Revenues were up 104% on the year to $168 million, up 21% on a quarterly basis. Investors are reassured with the growth figures after sales grew "only" 15% on a quarterly basis in the third quarter. Furthermore, it beat analyst estimates, which expected revenues to come in at $160 million.
The company now has 145 million members and is still heavily focused on the U.S. as it generates two-thirds of its revenue in this part of the world. EBITDA grew to $34.4 million up 106% on the year with diluted net income of $6.9 million or $0.06 per share.

Full year results
Growth for the full year was even higher at 115%, coming in at $522 million. Net income was a mere $12 million or $0.13 per share. The company has enough financial resources, ending the year with $577 million in cash, in order to finance its continuous expansion plans.

LinkedIn simultaneously issued its first quarter outlook for 2012. Revenues are expected to come in at $170-$175 million up 83% compared to last year but just up 3% on the quarter. This comes close to analysts who expected a guidance of $170 million.
EBITDA is expected to grow to $25-$27 million which is up 95% on the year, however down 25% on the quarter.
Full year revenue is expected to come in at $840-$860 million up 63% with EBITDA at $155-$165 million. The full year guidance came in much higher than analysts expected, as they expected the company to guide $834 million in revenue and $150 million in EBITDA.

Friday's spike values the company at $8.7 billion, which is 16 times 2010 revenue and roughly 10 times 2011 annual revenue. This compares with a valuation range attached to Facebook's IPO of 25 times 2010 revenue at a $100 billion valuation.
While the company has a user base which is only a fifth of the social networking size, its base is much more valuable for advertisers. With just over $1 in revenue per user a quarter, the goal for LinkedIn is not to aggressively grow its customer base, but rather increase the monetization rate and increase revenues per user.
With traditional employment agencies quickly generating $2000-$5000 per worker in revenue, Linkedin should invest heavily in its corporate solutions division and pursue an aggressive monetization program on its current customer base. Only such a strategy can justify the present valuation and fuel healthy returns in the future.

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