LinkedIn (LNKD) Jeffrey Weiner on Q4 2015 Results - Earnings Call Transcript

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LinkedIn Corp. (NYSE:LNKD)

Q4 2015 Earnings Call

February 04, 2016 5:00 pm ET

Executives

Matt Sonefeldt - Head of Investor Education

Jeffrey Weiner - Chief Executive Officer & Director

Steven J. Sordello - Chief Financial Officer & Senior Vice President

Analysts

Douglas T. Anmuth - JPMorgan Securities LLC

Daniel Salmon - BMO Capital Markets

Brian Nowak - Morgan Stanley

Thomas White - Macquarie Capital (NYSE:USA), Inc.

Mark Mahaney - RBC Capital Markets LLC

Eugene Charles Munster - Piper Jaffray & Co (Broker)

Eric J. Sheridan - UBS Securities LLC

Mark A. May - Citigroup Global Markets, Inc. (Broker)

Heath Terry - Goldman Sachs & Co.

Robert S. Peck - SunTrust Robinson Humphrey, Inc.

Justin Post - Bank of America Merrill Lynch

James Lee - CLSA Americas LLC

Operator

Ladies and gentlemen, welcome to the LinkedIn Fourth Quarter 2015 Earnings Conference Call. During the call, all participants will be in a listen-only mode. After the presentation, we will conduct a question-and-answer session. As a reminder, this conference is being recorded and will be available for replay from the Investor Relations section of LinkedIn's website following this call.

I will now turn the call over to Matt Sonefeldt. Thank you, Sir, you may now begin.

Matt Sonefeldt - Head of Investor Education

Good afternoon. Welcome to LinkedIn's Fourth Quarter 2015 Results Call. Joining me today to discuss our results: our CEO, Jeff Weiner; and CFO, Steve Sordello.

Before we begin, I'd like to remind you that during the course of this call management will make forward-looking statements, which are subject to various risks and uncertainties. These include statements relating to expected member growth and engagement, our product offerings, including mobile and our product deployment process, results of our R&D efforts, revenue, including revenue growth rates, adjusted EBITDA, depreciation and amortization, stock-based compensation, share-dilution, taxes, the product mix between online and field sales, churn rate and expenses.

Actual results may differ materially from the results predicted, and reported results should not be considered as an indication of future performance. A discussion of risks and uncertainties related to our business is contained in our filings with the Securities and Exchange Commission. In particular, the section entitled, Risk Factors in our quarterly and annual reports, and we refer you to these filings.

Also I'd like to remind you that during the course of this call, we may discuss some non-GAAP measures in talking about the company's performance. Reconciliations to the most directly comparable GAAP financial measures are provided in the tables in our earnings release.

This conference call is also being broadcast on the web and is available through the Investor Relations section of the LinkedIn website.

With that, I will turn the call over to our CEO, Jeff Weiner.

Jeffrey Weiner - Chief Executive Officer & Director

Thank you, Matt, and welcome to today's conference call. I'll start by summarizing the operating results for the fourth quarter and full-year of 2015, and I'll recap some of the key milestones that reflect the execution of our strategy. I'll then turn it over to Steve for a more detailed look at the numbers and outlook.

Q4 was a strong quarter for LinkedIn, bringing to a close a successful year of growth and innovation against our long-term roadmap.

For Q4, overall revenues grew 34% to $862 million. We delivered adjusted EBITDA of $249 million, and non-GAAP EPS of $0.94. For the full year 2015, revenue was $2.99 billion, up 35%, and we delivered adjusted EBITDA of $780 million, and non-GAAP EPS of $2.84.

In the quarter, cumulative members grew 19% to 414 million, unique visiting members grew 7% to an average of 100 million per month, and member page views grew 26%. This yielded 17% year-over-year growth in page views per unique visiting member, continuing a pattern of strong engagement growth over the past several quarters. Mobile in particular grew three times faster than overall member activity, and now represents 57% of all traffic to LinkedIn.

In 2015, we organized our long-term product strategy around the principle of creating greater value for our members and our customers, connecting them to opportunity. Central to this strategy is to help members stay connected and informed, advance their careers, and work smarter. I want to take you through the progress we achieved exiting 2015.

In December, we launched our re-imagined flagship app, built with the goal to help members stay connected and informed through a simpler, faster, and more personalized experience. The new app is an entirely new member platform, on which our R&D teams can iterate faster and test new features continuously. It is at the core of our member value strategy.

The new flagship app includes all of our core functionality, with the Feed at the center. While still early, in January we are seeing meaningful acceleration across several key metrics including Feed engagement, searches, and messages sent. The result is the fastest year-over-year growth we've seen in five months.

We are also seeing members significantly increase the amount of content they interact with in the Feed, thanks to improved algorithms and easier tools to follow publishers. The year-over-year growth rate for members sharing content has nearly doubled since launching the new flagship app, accelerating to nearly 40% year-over-year. And some third-party publishers are seeing materially increased traffic coming from LinkedIn, in some cases greater than three times previous levels.

The early accelerated traffic trends are particularly noteworthy, given our 2015 emphasis on quality versus quantity of email sent by LinkedIn to members. We have reduced the number of emails sent on a per member basis by 40%, a worthwhile trade-off aligned with our long-term strategy to create the best possible member experience.

Another key member investment throughout 2015 has been to help members advance their careers. As of January, we've more than doubled the number of jobs on LinkedIn versus last year, to more than 6 million open listings.

Even more encouraging is the acceleration in members leveraging LinkedIn to find career opportunities. Through improved discovery in our flagship and Job Seeker apps, as well as better relevance, we've seen a material increase in jobs engagement on LinkedIn, from approximately 30% year-over-year growth last January to over 80% growth today. In addition, our jobs app has seen traffic increase approximately six times from a year ago. And most importantly, we're driving a greater volume of hiring by our customers.

Integral to finding a job is ensuring that our members have the right skills. Lynda gives us a strong learning content asset, with the highest NPS scores across our entire product portfolio. As we look towards 2016, you can expect to see Lynda content more deeply integrated into the core LinkedIn experience, as well as deeper integration across our premium products. We also see a great opportunity this year to leverage our go-to-market strategy to continue to deliver Lynda content into the enterprise.

By providing greater member value, we can continue to focus on helping our customers work smarter when they hire, market, and sell by leveraging our three diverse product lines – Talent Solutions, Marketing Solutions, and Premium Subs, which today includes Sales Solutions.

For Talent Solutions, in 2015 we unveiled our first complete revamp of our flagship Recruiter product in seven years. And we introduced LinkedIn Referrals, our first new Talent Solutions SKU. Next-generation Recruiter is more intuitive and relevant, and along with Referrals, will increase a recruiter's ability to find passive talent based on relationships within the LinkedIn network. We are now aggressively ramping our go-to-market efforts for both products.

In 2016, we have three priorities for our core hiring products. First, we'll roll-out new Recruiter and Referrals across our existing customer base. Second, we will tie our existing products together into an easy to use suite, growing our potential to impact greater amounts of hiring with existing customers. And third, we'll begin our journey towards addressing long-tail hiring by making Recruiter simpler to use, and introducing automated sourcing to help SMBs and hiring managers find and acquire talent.

The acquisition of Connectifier, announced this afternoon, will further strengthen our core products and accelerate our product roadmap, leveraging powerful machine learning-based searching and matching technology to help recruiters and hiring managers find the perfect talent fit.

For Marketing Solutions, we remain focused on being the most effective platform for marketers to engage professionals. That goal is increasingly realized through Sponsored Updates, which saw revenue more than double in 2015 as our fastest growing monetized product at scale. Sponsored Updates represented 52% of Marketing Solutions revenue exiting the year. Looking forward to 2016, we will continue to invest aggressively in Sponsored Updates by introducing more functionality, such as conversion tracking and enhanced targeting. We will place a large emphasis on scalability as engagement grows with our Feed in the new flagship app.

Within our Premium Subscriptions line, our land and expand go-to-market strategy for Sales Solutions continues to pay off and Sales Navigator customer satisfaction continues to increase. In 2016, we will continue to focus on improving the core product to become both a must-have daily-use case, and the primary system of engagement for sales professionals.

In 2015, we also introduced Lookup and Elevate, our newest enterprise products designed to help companies and their employees work smarter. These products not only connect any enterprise's employees, but also support and reinforce our existing Hire, Market, and Sell products. Already, we've seen strong early uptake, with 29 of 30 pilot customers purchasing Elevate.

Our strategy in 2016 will increasingly focus on a narrower set of high value, high impact initiatives with the goal of strengthening and driving leverage across our entire portfolio of businesses. Our roadmap will be supported by greater emphasis on simplicity, prioritization, and ultimate ROI and investment impact.

To that end, I would like to conclude by thanking our team. Our employees remain focused on realizing our mission and vision, and our culture remains our strongest asset. Given current secular trends in the global economy, our sense of purpose has never been stronger or more relevant.

With that, I'll turn it over to Steve for a deeper dive into our operating metrics and financials.

Steven J. Sordello - Chief Financial Officer & Senior Vice President

Thanks, Jeff. Today, I plan to cover highlights from our fourth quarter results and our initial outlook for 2016. I will discuss growth rates on a year-over-year basis unless indicated otherwise, and non-GAAP financial measures exclude items such as stock-based compensation expenses, amortization of intangibles, and the tax impacts of these adjustments.

The fourth quarter showed strong performance. Key highlights included the launch of our new flagship mobile app and solid growth across our three core product lines, producing revenue growth of 34% year-over-year. Strong top-line results were complemented by margin expansion with adjusted EBITDA increasing nearly 40% year-over-year to a 29% margin. This profitability reflects our longer-term emphasis on pairing investment in our future growth with increased scalability.

With respect to revenue, we generated $862 million in total sales, growth of 34% year-over-year, or 39% on a constant currency basis. Talent Solutions, comprised of Hiring and Learning & Development, showed strong performance. Revenue was $535 million, growing 45% year-over-year, and represented 62% of sales versus 57% last year.

Within our Hiring business, revenue grew 32% year-over-year, or 37% on a constant currency basis. Field sales continue to represent the majority of Hiring revenue, growing roughly in line with the overall business. New customer acquisition was strong, we added over 3,000 new accounts in the quarter, and ended the year with more than 42,000 under contract.

In the fourth quarter, the rate of add-ons and renewals decreased moderately year-over-year, while churn was healthy and relatively consistent with the prior year. One note, this will be the last quarter we formally disclose our field sales corporate customer metric. There are several reasons for this change: First, the correlation of this metric to revenue growth has lessened over time as the diversity and size of our customer base has significantly grown.

Second, the large customer base scale makes it increasingly challenging to measure customers across both SMBs and multi-subsidiary enterprises. Lastly, our strategy will lead us to increasingly sell to customers through both the field sales and self-serve channel, making the field sales customer count less relevant as a long-term metric to measure the business.

In Q4, approximately one quarter of Hiring revenue came from self-serve, mostly oriented towards individual members. As you may recall, we streamlined our premium buying experience exiting 2014, leading to a mix shift of individual subscribers into Job Seeker and Recruiter Lite and away from the General Subscription SKU within our Premium line.

As a result, we saw an acceleration in online revenue in the second half, ultimately creating an overall Hiring revenue growth benefit in the low single-digits year-over-year. Online job postings growth slightly decelerated in Q4, but was consistent with the range of growth for the full year.

Learning & Development contributed $49 million. And today, self-serve represents approximately 60% of revenue, although field sales is growing two times faster. Within field sales, we are leveraging our enterprise sales playbook, beginning with rolling out a hunter/farmer sales model starting in 2016.

Marketing Solutions grew 20% to $183 million, or 24% on a constant currency basis, and represented 21% of revenue versus 24% last year. Sponsored Updates continues to be our fastest growing product at scale and is now the primary driver of growth for Marketing Solutions. Sponsored Updates continues to exceed our expectations given how quickly it has scaled. With the launch of the new flagship Feed, we are increasingly focused on driving even greater alignment between engagement and Sponsored Content growth.

In the quarter: Sponsored Updates grew approximately 85%, surpassing 50% of Marketing Solutions revenue for the first time. And growth has been driven largely by a combination of engagement and customer adoption.

As expected, CPM-based premium display continued to face secular-driven headwinds consistent with prior periods. Display decreased in the high 30% range year-over-year, slightly more than prior quarters, due to lapping a particularly strong Q4 2014. Premium display now represents approximately 15% of the Marketing Solutions mix, compared with roughly 30% last year.

In addition, this quarter we started to offer inventory through programmatic exchanges, an initiative we will further pursue in 2016. Lastly, I want to spend a moment on our B2B offerings.

Our strategy in acquiring Bizo was to create a unified ad platform to better address the B2B market opportunity. In 2015, we launched specific products, particularly Lead Accelerator, as standalone offerings. While initial demand was solid, the product required more resources than anticipated to scale.

As a result, we will phase out selling Lead Accelerator in the first half and incorporate the key technology into Sponsored Content throughout 2016. We will also deprecate Network Display through this process. In the short-term, the trade-off is roughly $50 million in potential revenue, but we believe this is the best long-term decision.

This change should ultimately benefit the entire Sponsored Content customer base with a stronger product and more streamlined experience. We also remain committed to support our current Lead Accelerator customers through the migration. Sponsored Content is our fastest growing and most profitable ad product, so we will increasingly focus our efforts here to scale our B2B capability in the fastest, most sustainable way.

Premium Subscriptions grew 19% to $144 million, or 23% growth on a constant currency basis, and contributed 17% of revenue versus 19% last year.

Sales Solutions remained the faster growing component, now representing approximately 38% of Premium Subscription revenue. Total revenue growth was in the mid-50% range year-over-year, with the field sales portion growing more quickly, and now representing more than half of Sales Navigator revenue.

We once again saw continued improvement in customer satisfaction and product usage compared with last quarter. NPS scores for Sales Navigator are at their highest point since launch, and we continue to see user engagement improvements. We believe these are leading indicators for greater market adoption.

While we've seen the product market fit gain traction, we see further room for improvement in 2016: For the product, our goal is to make Sales Navigator a need-to-have daily-use case. We continue to invest in our sales-force, focusing on both the rep growth and increased productivity, while also improving the customer experience to reduce churn that today is higher than we would like. And lastly, we intend to disclose Sales Solutions as a distinct product line in the first half of 2016.

Our General Subs SKU continued to represent the majority of premium revenue. Since launching the new onboarding experience in late 2014, subscribers have increasingly shifted towards Job Seeker and Recruiter Lite, both reported within Talent Solutions. General subscription growth is now in the mid-single digits as more of our subscribers migrate to other products.

In terms of geography, revenue generated outside the U.S. represented 39% of overall revenue versus 40% last year, or 41% on a constant currency basis, reflecting the currency headwinds in EMEA and APAC. By channel, field sales contributed 64% of revenue, consistent with last year.

Moving to the non-GAAP financials, adjusted EBITDA was $249 million, a 29% margin. Depreciation and amortization totaled $130 million, while stock compensation was $135 million [$135 million].

GAAP net loss was $8 million, resulting in a $0.06 loss per share, compared to income of $3 million and $0.02 last year. Non-GAAP net income was $126 million, resulting in earnings of $0.94 per share, compared with $77 million and $0.61 last year.

The balance sheet remains well positioned with $3.1 billion of cash and marketable securities. Operating cash flow was $177 million versus $130 million a year ago. And free cash flows were slightly negative during the quarter, due to CapEx investments in data centers and facilities.

We will now end the call with our outlook for the first quarter and full year. For the first quarter, we expect: revenue of approximately $820 million, representing 29% percent growth. Adjusted EBITDA of approximately $190 million, a 23% margin. And Non-GAAP EPS of approximately $0.55 per share.

For the full year, we expect: Revenue between $3.6 billion and $3.65 billion, a range of 20% to 22% year-over-year growth. This includes a 2% FX headwind. It also incorporates removing $50 million of potential Bizo revenue contribution in 2016. Adjusted EBITDA of between $950 million and $975 million, a 27% margin at the midpoint. And non-GAAP EPS of approximately $3.05 to $3.20 per share.

Let me take a moment to provide further context around guidance. Overall, we expect solid growth in Sponsored Content and across our field sales businesses where we continue to gain share. Specific to our product lines: within Talent Solutions: Our core field sales business continues to perform well. We exited 2015 at approximately 30% year-over-year growth, and expect mid-20% growth in 2016. This outlook reflects continued pressure in EMEA and APAC given current global economic conditions.

In terms of our newer products, Referrals and the new Recruiter, guidance does not incorporate meaningful contribution to 2016 revenue given the gradual rollout. And with respect to self-serve products, we expect single-digit growth, given the difficult comparison with 2015.

For Marketing Solutions: we are primarily focused on Sponsored Content, where we will continue to improve the product and technology platform. This focus includes exiting Lead Accelerator as a standalone product and incorporating the technology into Sponsored Content. This is a long-term strategic decision that impacts our short-term revenue growth. When excluding the past and future impact from Bizo, we expect our Marketing Solutions business to accelerate in 2016.

And finally, we're seeing positive early engagement trends from the new flagship launch, but it's too early to incorporate the impact into our guidance. In terms of the emerging growth areas, Sales Solutions continues to gain traction, and we'll continue to invest in the product and go-to-market to achieve greater growth and scale. And Learning & Development remains an early bet that we're aggressively pursuing, with the enterprise effort ramping throughout the year.

Additional guidance incorporates: depreciation of approximately $85 million for Q1 and $380 million for the full year, with first quarter amortization of approximately $48 million and $180 million for the full year. Stock-based compensation of approximately $153 million for Q1 and $630 million for the full year. Other expense of approximately $6 million for Q1 and $26 million for the full year on a non-GAAP basis, and $22 million for Q1, and $93 million on GAAP basis for the full year. This includes GAAP-only convertible accretion expense of $12 million in Q1 and $48 million for the full year, as well as an impact from the financial derivative related to our Chinese JV.

A non-GAAP tax rate of 23% for Q1 and the full-year. Also as it relates to tax, we will likely take a GAAP charge of approximately $100 million in the second quarter of 2016, the result of a valuation allowance against our deferred tax assets. As this is a non-cash charge, this will not impact our non-GAAP results. CapEx in the high-teens percent of revenue for the full-year, reflecting ongoing data center and facility investments. And for the share count: on a GAAP basis, we expect 133 million fully diluted weighted shares in Q1, and an average of 135 million for the full year. On a non-GAAP basis, we expect 135 million fully diluted weighted shares in Q1 and an average of 137 million for the full year.

In closing, LinkedIn delivered a strong end to 2015. We made significant progress on product innovation with the launch of the new flagship product and a refreshed Hiring product portfolio. As we look towards 2016, our focus is on investing intelligently in our core member and customer value propositions to capture the large addressable opportunity ahead of us.

Thank you for your time, and we'll now take questions.

Question-and-Answer Session

Operator

Your first question is from Doug Anmuth from JPMorgan.

Douglas T. Anmuth - JPMorgan Securities LLC

Thanks for taking the question. I was just hoping you could help us understand the breakdown of revenues currently within the Talent business? And then also just talk within that about the 4Q add-ons in the renewals, the decrease there, what were the drivers? And then also if there's anything else just beyond the self-serve slowdown that you're talking about in 2016? And then also just on Referrals, can you just help us understand the use case more there? And how that's going to be priced as well going forward? Thanks.

Steven J. Sordello - Chief Financial Officer & Senior Vice President

Sure. The breakdown for the Talent Solutions business is roughly – three quarters of it is the field sales, which is the enterprise, and about 25% of it is the online business. Oh, in terms of Referrals? So Referrals, so that was a product that launched late into 2015. It's being gradually rolled out throughout the year, and so from a guidance perspective it's incorporated from a gradual roll out perspective.

Douglas T. Anmuth - JPMorgan Securities LLC

Thank you.

Operator

Your next question is from Dan Salmon from BMO Capital Markets.

Daniel Salmon - BMO Capital Markets

Hey, guys. Good afternoon. Just to return to the question about online sales decelerating somewhat in 2016, is that something that you see as a temporary element or just more of a permanent change to the business? And if the latter, does that change your view on long-term margins for the company?

Steven J. Sordello - Chief Financial Officer & Senior Vice President

Yeah, so the online business, it has been decelerating over the last few years. It's a structural decel, if you look at our Subs business in the aggregate. Now with the onboarding experience that we rolled out late in 2014, we simplified the SKUs and in that process the mix shift. And so what we saw from a mix shift perspective is more purchases within Job Seekers Sub and Recruiter Lite. So from a Talent Solutions perspective it added a couple points of growth for online. But the trajectory of the online business is it's been pretty linear in terms of the year-on-year growth rate.

It does have an impact. Obviously, the online businesses are very high margin. But that's baked into our expectations for our long-term outlook. What I would say on the margin perspective, over time, we exited at 29% margin this quarter. Our longer-term goal at the IPO was 30%+. And we're going to continue to invest in the business, but we feel more confident than ever about the long-term margin profile of the company.

Jeffrey Weiner - Chief Executive Officer & Director

I would also add that when it comes to the online business, part of the driver of that going forward is going to be our ability to service SMBs. And for both our Talent Solutions business and our Marketing Solutions business, we think there is a fairly-significant opportunity with regard to introducing products and services that are going to meet their needs.

So with regard to Talent Solutions in particular, historically flagship Recruiter product has best served recruiters, staffing agencies, more-sophisticated recruitment efforts. Individual hiring managers, folks within small, medium-size businesses have different needs, and we're going to be developing products that better meet those needs. And so that could be a driver of online growth in the future with regard to Talent Solutions.

And with regard to Marketing Solutions, I think there's plenty of opportunity to work our way down the long tail in terms of customer acquisition. And we've already been investing in making it easier for people to use our self-service tools in that area. And we think that's an opportunity as well.

Daniel Salmon - BMO Capital Markets

Great. And if I could just have one follow-up on Marketing Solutions. With Lead Accelerator being phased out, will you be doing any off-LinkedIn ad sales at this stage? And then second, is it just the display inventory being offered on programmatic exchanges currently?

Steven J. Sordello - Chief Financial Officer & Senior Vice President

Yes, that is correct. It's just on the display side, on the programmatic.

And in addition to the Lead Accelerator, we are also deprecating the LND, the LinkedIn Network Display, off channel revenue.

Daniel Salmon - BMO Capital Markets

Okay. Great. Thanks for clarifying.

Operator

Your next question is from Brian Nowak from Morgan Stanley.

Brian Nowak - Morgan Stanley

Thanks. I have two. Just to go back to the Lead Accelerator phase-out. I guess can you just talk about what you saw in advertiser demand or what you learned about, what could have gone better there? And when you say you're incorporating the technology into Sponsored Content, what does that mean? Does that mean advertisers are going to be able to bid on ads off of LinkedIn, or what does that mean?

Second question is on Lynda. Can you just help us understand the Lynda EBITDA contribution full year 2015 and how we should think about that for 2016?

Jeffrey Weiner - Chief Executive Officer & Director

Yeah, I'll start with the LLA question and Steve can pick up Lynda. So with regard to LLA, we saw pretty healthy initial demand. And what became increasingly clear as we learned more about the business is that to scale that would require greater investment. And that's not just from a capital or resource perspective, but from a managerial perspective. And we want to increasingly focus on those areas of greatest leverage.

And when contrasted with the momentum we have with the native advertising in Sponsored Updates specifically, we felt like there was a great opportunity to get more focused on our fastest-growing business at scale in native advertising. A business that we believe has the potential to benefit from our re-imagined flagship application and greater engagement within the Feed in that application, where 80% of Sponsored Updates is coming through mobile.

With regard to LLA and Bizo infrastructure taking leverage (28:35), one example of that would be conversion tracking. And we want to do as good a job as possible in terms of closing the loop on ROI for our marketers. So that would be one example of how we can leverage the infrastructure going forward.

Steven J. Sordello - Chief Financial Officer & Senior Vice President

And in terms of Lynda EBITDA margin, this is an area where we've gone to full integration. Historically, we've spoken it's impacted overall margin by a few percentage points, that is now closing the gap. It's now driving more and more margin but it's in combination with our overall business. We're focused this year on really rolling out the enterprise component, and so we've started to combine elements of the sales force and obviously, the support structure underneath them.

Operator

Your next question is from Tom White from Macquarie.

Thomas White - Macquarie Capital (USA), Inc.

Great. Thanks for taking my question. On the EBITDA guidance for 2016, I guess specifically on margins. It looks like, at best, you're forecasting up 100 basis points. At worst, down maybe 10 basis points, if I'm doing the math right there. Can you maybe just talk a little bit about the moving pieces? You're exiting things like Lead Accelerator that are taking too long to scale, you've got this high-margin ramping Sponsored Updates business. How does that trade off with all the other areas in investment?

And then it looks like on the Lead Accelerator stuff, it sounds like you're moving away from less-scalable products. Premium Display, Lead Accelerator. Is there anything else in your product portfolio that's at risk to falling into that category of things that maybe you guys realizing are going to take too much investment to scale to where you may be initially thought they could get to? Thanks.

Steven J. Sordello - Chief Financial Officer & Senior Vice President

Yeah, on the margin front I think we're still very clearly in investment mode, investing in a focused way around what is working. As mentioned a few minutes ago, the online mix obviously has an impact in the shorter-term in terms of the margin profile. Areas like the Bizo pull-out, where we're losing $50 million, that was a business that over time will help us scale more effectively because repurposing back to a higher margin project such as Sponsored Content. So that's a transition this year, as well as the investment in a number of other areas. The Lynda investment is ongoing, we have investments in China ongoing throughout 2016.

So, right now, the guidance for 2016 is up slightly on a year-on-year basis. As I mentioned earlier, from a longer-term perspective, we're feeling really good about the potential to drive a scale in this business on the margin front.

Jeffrey Weiner - Chief Executive Officer & Director

On the second question, there's nothing top of mind with regard to our core business lines. We're going to continue to stay focused, we're going to continue to be disciplined. We want to continue focus on the areas of greatest leverage, focus on fewer things done better. And it's not just going to be with regard to the business lines. So we recently announced, we're going to be end-of-lifing, an application called Connected that we think offered functionality that's a much better fit within our flagship application. And we're going to continue to get focused on the core. And that's where we think we can create the most value.

Operator

Your next question is from Mark Mahaney from RBC Capital Markets.

Mark Mahaney - RBC Capital Markets LLC

I wanted to go back over the deceleration, the growth rate implied in the guidance. And just ask you to address whether issues like macro-weakness in some of your end markets are affecting that guide? Whether the sales force transition issues that you had at the beginning of 2015, whether maybe those have come back? And maybe then also talk about whether you've seen anything new in the competitive landscape? Any of those three areas, you didn't talk about any of them. So does that mean that none of them are factors in your guidance? Thank you.

Steven J. Sordello - Chief Financial Officer & Senior Vice President

So I would say on the Talent Solutions side specifically, we had a good finish to 2015. The core of the business remains healthy and growing nicely on field sales side through 2016. The re-segmentation really is not having an impact this year. I think what we saw last year was a rebound in Q2, Q3 from that, the deferral of add-ons. In terms of more of the macro or the global sentiment, we are cognizant of the uncertain environment today. We're not really forecasting a significant downturn, but clearly APAC and EMEA exited weaker, and so we're factoring that into the guidance.

Mark Mahaney - RBC Capital Markets LLC

And nothing on the competitive side?

Jeffrey Weiner - Chief Executive Officer & Director

Nothing specific on – there's nothing explicit there, no.

Mark Mahaney - RBC Capital Markets LLC

Thank you very much.

Operator

The next question is from Gene Munster from Piper Jaffray.

Eugene Charles Munster - Piper Jaffray & Co (Broker)

Hey. Good afternoon. In the past you've talked about Navigator's business being something that eventually could reach $1 billion run rate. It looks like it's on more or less a $200-plus million run rate. Any thoughts in terms of how you're thinking about that business longer term? Do you still feel it has the same potential just taking a little bit longer to get there? Or should we adjust kind of our expectations for Navigator longer term? Thank you.

Jeffrey Weiner - Chief Executive Officer & Director

Yeah, we do think that business has long-term potential to scale. That hasn't changed. We think we've got the right roadmap. We've been learning quite a bit since we initially launched the product. We're going to be increasingly focused there on the product Sales Navigator as a system of engagement. Not necessarily a system of record that would replace the CRM tool, not necessarily a system of communication that would replace e-mail. Those are in place firmly with regard to sales practices. But as a system of engagement in terms of a place salespeople are going to go every day to become more effective in terms of closing leads, close prospects, making deals happen, we think we've got the right roadmap in place.

I would also point to the fact that we saw significant NPS gains, Net Promoter Score gains, with the pre-existing Sales Navigator product, as we got market feedback and continued to improve there. So I think it's just a question of time. And we're going to continue to invest in what we believe is a sizable, not only addressable opportunity, but strong market fit with regard to what our platform can offer uniquely to sales folks.

Eugene Charles Munster - Piper Jaffray & Co (Broker)

Just one follow-up. Any update in terms of our – can you remind me the number of salespeople you have focused on Navigator? And how that's been changing?

Steven J. Sordello - Chief Financial Officer & Senior Vice President

So it's a about – a little over 260 heads. It's been growing a little north of 50% year-on-year.

Eugene Charles Munster - Piper Jaffray & Co (Broker)

Great. Thank you.

Operator

The next question is from Eric Sheridan from UBS.

Eric J. Sheridan - UBS Securities LLC

Thanks for taking the questions. Maybe I can ask two. One, if you look at the deferred revenue balance, the growth in the deferred revenue balance actually accelerated in Q4, so I'm trying to reconcile that acceleration in that balance with sort of the decel you're sort of guiding to in Q1. Maybe you could just give me a little bit of color on that?

And then going back to Mark's question about sort of broader impacts on the business, one question we've started to get from investors is maybe impacts from the VC-funded companies, what that might have meant for growth in both Talent and B2B marketing in 2015 that might not repeat in 2016? And how you might have factored that into your guidance? Or what you're seeing from the broader landscape? Thank you.

Steven J. Sordello - Chief Financial Officer & Senior Vice President

So in terms of the deferred revenue, it was up year-on-year, primarily due to the contribution from Lynda. If you look at it, excluding Lynda, it was roughly flat.

Jeffrey Weiner - Chief Executive Officer & Director

In terms of the impact from high-growth companies or private companies in 2016, nothing material that we're anticipating regardless of what the macro environment would imply.

Operator

And your next question is from Mark May from Citi.

Mark A. May - Citigroup Global Markets, Inc. (Broker)

Thanks. I appreciate it. I have two, if I could. I think one is a little bit of a rehash, but a little bit different angle. It looks like the last three years, you pretty consistently averaged about 10% sequential revenue growth in the Q2 to Q4 timeframe. And even factoring in the phased-out products, your guidance implies kind of low-single digits growth. So I guess I'm still kind of getting at the guidance outlook, not just for Q1, but kind of the implied for the rest of the year? And why you're forecasting a meaningful deceleration or even modest growth sequentially after Q1? Is that conservatism because of the macro? Or does it have to do with kind of their renewal activity that you talked about that will kind of impact hiring growth for the next couple of quarters?

And then my second one, it looks like head count additions in Q4, around 100, was noticeably lower than normal. Is that a reflection of the competitive hiring environment? Or just something that you guys are doing internally differently? Thanks.

Steven J. Sordello - Chief Financial Officer & Senior Vice President

So in terms of the guidance, what I would say is that on the LTS side, as I mentioned, the field side is healthy. It's growing kind of mid-20% range for the full year. On the online side, we're seeing a bit of a drag, but it really only impacted the overall LTS by a couple percentage points. LMS, we're removing $50 million of business in the back half of the year from the Bizo-related products, in terms of what growth normally would be. So that is impacting some of the growth rates in the back half of the year.

And then for the other business lines – LSS and Lynda – those are gradually building over time. So their contribution – it's not a step function, it's a gradual process.

In terms of the global, again, we're cognizant of the environment right now. And as I mentioned there are particular markets where we've seen more of an impact. They tend to be EMEA and APAC. We have seen some slowdown in – labor department data shows the year-on-year growth rate in the back half declining somewhat. So there are elements baked in, but there's not a significant forecast there. It's not significantly impacting the guidance.

Jeffrey Weiner - Chief Executive Officer & Director

With regard to the head count question, not a competitive dynamic. We remain very competitive, especially with regard to technical hires, which has been a challenging hiring environment, I think, for a couple of years, especially here in the valley. And I think our team has done excellent work in terms of continuing to add to the world-class folks that we already have here. That is more a reflection on having resources in place that we feel can now be leveraged, and we alluded to this on the last call. With the launch of our re-imagined flagship application, we now have a platform in place that enables for greater innovation, faster iterations and greater leverage. And I think that's one of a number of examples where you're going to see very similar discipline on a going-forward basis.

Steven J. Sordello - Chief Financial Officer & Senior Vice President

And just one other highlight there. In terms of the Q4 number, the net increase was about 100 heads. But in the quarter, we actually accelerated some of the integration from a redundancy perspective with the Lynda acquisition. So in terms of – that impacted the net hires, so the total hires was closer to 180.

Mark A. May - Citigroup Global Markets, Inc. (Broker)

Thanks.

Operator

Your next question comes from Heath Terry from Goldman Sachs.

Heath Terry - Goldman Sachs & Co.

Great. Thanks. Last quarter you shared a couple of examples of adoption of Sales Navigator. Is there anything along those lines that have developed since the last call that you feel is worthwhile to highlight?

And then with the decision around Bizo, this is now – you're now out of essentially leveraging the data that you have for the benefit of advertisers off of the LinkedIn platform. Obviously that's been an opportunity you've been asked about a lot. Is it simply a philosophical objection to taking advantage of that data within a broader advertising environment or is there something else there?

And then just finally, if there's any measure of the impact of FX on your guidance for growth in 2016 that you could quantify, we'd appreciate it.

Jeffrey Weiner - Chief Executive Officer & Director

So with regard to the EY announcement, which I think is what you were alluding to, last quarter, we thought that was illustrative of not only the ability to leverage Sales Navigator and our Sales Solutions, but also leverage the broader LinkedIn platform to help enterprises become more connected. And in that particular instance, I thought it was a perfect illustration where EY was going to work with their partnership to help connect partners to one other, to alumni, to customers. And then to provide us feedback in terms of what they were hearing from clients so we could continue to improve the product. And so we thought that was worth calling out explicitly, because it was a strong example of where we're taking the platform.

We continue to make in-roads with large customers of similar scope and scale to the size of EY as a company. There has been increasing demand in terms of large-scale multinational enterprises. And again, it's going to take time to continue to roll out the product and ensure that companies are ready to fully embrace social selling. It's a new practice and we're looking forward to continuing to educate the marketplace on that front.

With regard to plans to leverage data off of LinkedIn.com, that comes back to Members First. And we've talked about this in the past, but trust is the foundation, it's the bedrock upon which our entire ecosystem exists. And we talked about Members First as a value, it's a first principle. And so to the extent we can be leveraging data to create more value for members and more value for customers in a way that's consistent with that first principle, then we'll explore those opportunities.

Steven J. Sordello - Chief Financial Officer & Senior Vice President

In terms of FX, it's a little north of a 2% impact that we're anticipating in guidance. So it's a little north of $50 million.

Heath Terry - Goldman Sachs & Co.

Great. Thank you.

Operator

Your next question is from Robert Peck from SunTrust.

Robert S. Peck - SunTrust Robinson Humphrey, Inc.

Hi. Thanks. Just two quick questions. One, on that point there, Jeff, on the members. The UVs (43:58) growth has slowed down dramatically year-over-year to about 7% growth, and I think flat from 3Q. Have we hit peak penetration as far as growing the membership base there? Can you just give us a color on how we should anticipate that growing further? And then part two of the question is China. I don't think we heard anything on the call so far on China, the progress that's being made there. Can you give us an update or some stats around China? Thanks so much.

Jeffrey Weiner - Chief Executive Officer & Director

Absolutely. So with regard to your first question, on unique user growth and implications for penetration. When it comes to engagement and monthly active uniques, I think to the contrary. Not only do I not think it's fully penetrated, I think we're just starting to meaningfully see some of the by-products of our recent investment. And we alluded to it on the call earlier, but we've seen accelerating growth now in terms of unique user sessions and page views fairly consistently. And we're seeing the fastest year-over-year growth across those metrics consistently over the last five months.

So that acceleration in growth is most definitely related to the launch of this new flagship application, which has exceeded our expectations. What's interesting about the growth that we're seeing is the acceleration is not just with regard to mobile engagement, it's with regard to desktop engagement as well.

So what we're starting to see are some early days of two viral loops that have been introduced by virtue of the new product. One is related to the way in which people not only build their network, but nurture their network and stay in touch with people, through a new tab that we created in the flagship application called My Network. And the other is through new Messaging capability. And both of those have led to – with regard to those specific value propositions – very material year-over-year acceleration, and we believe that that's helping to lift the overall engagement of our mobile application and desktop experience.

I would also call out that, by virtue of being able to leverage some of the innovations take place within our Pulse application in our Feed, with regard to the home experience of this new flagship application, we're also seeing strong growth on that front as well. With regard to viral gestures, with regard to the number of shares, with regard to engaged Feed sessions. So we're seeing good momentum there. I think it's a bit early to be extrapolating that out over the remainder of the year, but we're certainly encouraged by what we're seeing.

With regard to China, China continues to be our fastest-growing market in terms of new users. And growth was very much a part of the strategy there, it was priority number one. At this point, given the initial success we've had in terms of penetrating the marketplace – not dissimilar from where we are elsewhere in the world – we want to begin to invest increasingly in engaging those members. And so our re-imagined flagship application was rolled out on a global basis, it's been localized for the Chinese marketplace and that's in addition to our first truly-local application – pure-play local application – Chitu, which is also gaining traction. But it's early days there as well.

Robert S. Peck - SunTrust Robinson Humphrey, Inc.

Thank you.

Operator

Your next question comes from Justin Post from Merrill Lynch.

Justin Post - Bank of America Merrill Lynch

Thank you. Just looking at the sequential guidance $820 million, it is down 4% or 5% from Q4. Have you seen any slowdown in close rates or any pipeline changes in the last couple of months that you can point out? And then my second question, if you look at SBC and CapEx they're both high teens – if you look at your outlook – as a percentage of revenue, and quite large. Can you maybe give us some color on the long-term outlook for those two as a percentage of revenue? Are they elevated right now? Thank you.

Steven J. Sordello - Chief Financial Officer & Senior Vice President

In terms of the Q4 to Q1 guidance, I wouldn't say that there's any particular trends that have shifted in any material way. I think that we typically see a down tick in Q1 from a seasonally-strong Q4.

In terms of the SBC and CapEx – so each of those one-by-one. On the CapEx side, we have some pretty large investments – I would say over this year and next year as well – related to data centers and to a lesser extent, facilities. As I think we spoke about before, we're building a number of data centers that will over the long-term create some pretty compelling cost efficiencies, but they have some material CapEx in operating impacts in the shorter term.

In terms of SBC, yeah, this is an area where we're in the 16%, 15% of revenue. We believe that scales over time as we continue to grow as a company. For both these areas, we target long-term, closer to 10% of revenue. And so that's where we want to migrate over time towards.

Operator

Your next question is from James Lee from CLSA.

James Lee - CLSA Americas LLC

Great. Thanks for taking my questions. My questions are mostly related to Marketing Solutions. And obviously you guys talk about product improvement going to 2016. I was wondering from Henry's perspective, what about the API partnership you currently have with agencies specifically for Sponsored Update? Do we expect an improvement there to expand your number of partners? I think as of last time you only have six.

And also secondly in terms of engagement, is there any reason why your total page views declined quarter-over-quarter? This is like the first time declined since second quarter of 2014? And just wondering what are you doing specifically to drive that improvement? Thanks.

Jeffrey Weiner - Chief Executive Officer & Director

Yeah, so with regard to the API partner update, we're going to continue to invest in our API capability, in that functionality, in the breadth of the offering. We think that's going to continue to be an important driver of growth going forward, so you can expect more there.

And with regard to page views quarter-over-quarter, there's pre – what we called internally Project Voyager, which is the re-imagination of our mobile flagship application. There's pre-Voyager and there's post-Voyager. So the growth rates that you were talking about were largely prior to the launch of this new flagship application.

After we launched the new flagship application, we actually saw a reversal. And we have seen an acceleration of our growth in terms of unique users, page views and sessions, as well as the number of true north metrics that helped drive those core three. And that's on both mobile and desktop.

Operator

That was our last question at this time. I will now turn the call back over to the presenters.

Jeffrey Weiner - Chief Executive Officer & Director

Thank you all for your time. We appreciate it, and we'll talk to you, again, next quarter. Take care.

Operator

This concludes today's conference call. You may now disconnect.

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