LinkedIn Q2 Recap: Robust Results; Updating Model With $125 Price Target

| About: LinkedIn (LNKD)

LinkedIn (LNKD) reported a strong Q2 results yesterday, driven by resilient revenue growth in all three segments and continued user engagement.

Key highlights:

  • Revenue: $228.2 million, +89% y/y and 21% q/q, beating the consensus of $216 million
  • Non-GAAP EPS: $0.16, slightly below consensus of $0.17
  • Q3 revenue guide: $235 - $240 million
  • FY2012 guidance: $915-925 million, vs. previous $880-900 million

Strong Revenue Growth

All three business segments performed well during the quarter.

Hiring solution revenue was $121.6 million, +107% y/y and 19% q/q, as companies turn to LinkedIn to engage prospective talents and reach their business audience. For example, Microsoft recently signed a multi-year renewal that include full spectrum of hiring solution product portfolio. This deal is considered one of the largest deals in LinkedIn's history. As of Q2, LinkedIn has 12,053 corporate customers.

Marketing solution revenue was $63.1 million, + 64% y/y and 28% q/q, as businesses continue to use LinkedIn to engage with their most relevant audiences. For example, Citi (C) partnered with LinkedIn to launch a branded LinkedIn group to reach and engage professional women. The group attracted over 30,000 members after three months and has one of the highest engagement levels

Premium subscription revenue was $43.5 million, +82% y/y and 15% q/q, as professionals continue to leverage LinkedIn's robust platform to engage with their target companies and recruiters.

Continued User Growth And Engagement

User growth was another bright spot. In Q2, LinkedIn has 173.9 million members, +50% y/y and 8% q/q. comScore unique visitors numbered 106.1 million, +30% y/y and 3% q/q. International market accounted for 70% of the new registered users, indicating LinkedIn's strong global reach.

As I mentioned in my prior notes, LinkedIn has a distinctive advantage over Facebook (FB) in that it is accessible in China, where Facebook is blocked by the government. Because LinkedIn's nature of professional social network is perceived harmless by the Communist Party, I believe that LinkedIn will become the only successful foreign social networking platform in China, given the growing number of global-minded young Chinese professionals and the limited scale and reach of the local Chinese professional social networking sites.

We also saw strong user engagement in both desktop and mobile platforms after LinkedIn redesigned its home-page and introduced the iPad app.

LinkedIn's newly redesigned home page simplified its social news product, LinkedIn Today, and resulted in a material increase in user traffic and a 150% increase in user engagement level. Strong engagement is critical to LinkedIn's Hiring Solution and Premium Subscription segment in that engaged users are likely to have the most recent profiles for the recruiters who use the Hiring Solution, and to use LinkedIn's monthly Premium Subscription services.

Mobile engagement was also strong. Since the introduction of LinkedIn for iPad, unique mobile visitors grew 38% and the number of page views grew 60% with half of the page views focused on content-focused products such as updates, news, and groups.

Encouraging Sign In Mobile Monetization

In my "LinkedIn Q2 Earnings Preview", I pointed out that mobile monetization will be a key focus in the earnings call. In June, LinkedIn test launched its first mobile monetization platform when Shell ran display ads on iPads. According to management, initial assessment has been positive.

Updating Model And Introducing $125 Price Target

I derived a price target of $125 using DCF methodology, assuming revenue grow at a CAGR of 40% in the next five years, and 16% in the subsequent five years. In addition, my base-case also assumes a 12.5% WACC and a 5% perpetual growth rate after 2022.

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