One Year In
LinkedIn (LNKD) the social media giant that pushes its users to create a professional profile, and build out their networks, debuted on Wall Street more than one year ago in May of 2011. The company started on the New York Stock Exchange closing at $94.25, leaving the company larger than AOL with a $10 billion market cap. As of last Friday the company's stock closed at $96.26, up 2.13 points, or 2.26%.
Last week, the company experienced a security breach that compromised more than 6 million passwords. While stock prices remained up after the breach, industry experts are expressing hesitancy about security protocols. Sources are now confirming the company had little if any sophisticated encryption methods for storing passwords. The results would not have been surprising for a small tech firm, the shock was for a large publicly traded entity that can recruit top talent. The company stands to lose its reputation among white collar professionals that store important phone numbers and emails of hard to reach professionals. Despite the uproar, the company's large install base, and distance of nearest competitors leaves the service uninterrupted for now. Advertising revenue for the online giant has increased five times since the previous year.
Differentiation and Opportunity
According to a recent Reuters report the online company is looking to buy Monster World Wide (MWW). Monster is an online job board that generates its revenues through paid job placement ads. This is a complicated combination of ideas for me as the two business models are quite different. Monster charges high fees to find candidates in various industries. Alternatively, talent agencies have begun sourcing candidates from Linkedin, which has 160 million installed professional resumes from various industries. In my view, any potential acquisition may provide increased online real estate, and market dominance among job seeking platforms, but would not provide any immediate benefit.
Despite the negative publicity the company has managed to attract growth on the market with shares up nearly 40%. One could see the poor security as spelling doom for the company reputation, however considering the Facebook (FB) stock blunder, investors may be able to hold confidence in LinkedIn's ability to manage its forecasts and profit estimations. In a market, when companies are running hard numbers to justify their place on the publicly traded market, LinkedIn has managed to create a business model.
Because so many professionals are seeking information about potential clients, or employees, the cost of memberships and advertising are clearly justifiable. In contrast, advertisers are beginning to grow skeptical of Facebook's ability to reach users with GM canceling a $10 million marketing campaign. Facebook also offers many of the same benefits as LinkedIn, enabling advertisers to target gender, geo locations, likes and interests; it's a marketer's dream, so why doesn't it feel like it? In contrast, LinkedIn has managed to create a stable business model with fewer users netting the company $188.5 million in ad revenues, for the first quarter of 2012, and steady forecasts. Despite the user base, Facebook manages to target ad relevancy, but do not compliment the product being offered. Google search results show ads for the term a user may be searching for. People click these ads because they are relevant.
The same is true of LinkedIn that despite having a much smaller user base, it still manages to garner professional subscriptions to relevant content that can be easily searched. LinkedIn may very well prove to be the online advertising gem we all had been searching for, but not as a mass provider but through the professional niche.
At the end of the day tech startups hold high risk, with uncertain developments in the market. Still with online advertising's continued growth and relevant exposure, LinkedIn through niche advertising provides advertisers with a valuable product.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.