Social media companies are the biggest rave on the market today. With companies like LinkedIn (LNKD), Facebook (FB), Groupon (GRPN), and Zynga (ZNGA) all going public over the last few years, investors have had chances to invest in their favorite social media website. Out of all the social media stocks on the market however, none have performed as well as LinkedIn. In fact, matching up LinkedIn's success to any other social media website is like comparing PepsiCo's (PEP) success to Reed's (REED) or Jone's Soda (JSDA), there's just no comparison.
LinkedIn serves over 161 million members, compared to social media giant Facebook with over 900 million users. It would appear as though shares of Facebook's stock would have the upper hand on LinkedIn, but that isn't the scenario. While Facebook has seen its share price dip over 50% this year, LinkedIn's shares have shot up over 60%. LinkedIn's yearly net earnings are projected to rise 100% from the previous year to $70 million. How can a company like LinkedIn dominate the social media market with nearly a sixth of the users as Facebook has? It's simple, LinkedIn has better user financial efficiency.
On average, for every hour a user spends on LinkedIn, the social media site generates $1.30. Evaluating Facebook though, for every hour one of its users spends on the site, the company only generates 6.2 cents! LinkedIn generates over 20x more money per hour from its users than Facebook does. Suddenly, Facebook having nearly 6x the users as LinkedIn looks pretty insignificant.
Facebook is struggling because it generates most of its revenue from ads, but its users seldom click on the ads because they're not search specific, like Google's (GOOG) or Yahoo's (YHOO). LinkedIn on the other hand, monetizes your information from the moment you sign up. Facebook also struggles because the company has yet to find out an effective way to advertise to its mobile customers. The amount of mobile users are continuing to climb too, so Facebook needs to solve this dilemma soon before it finds its stock falling even further. LinkedIn though, uses its mobile customers data to monetize more opportunities for business.
With any stock, you want to make sure you get in at a comfortable price and I think LinkedIn is too high at the moment. I think this entire market is due for a correction soon, especially with the upcoming elections. Trade smart, and look to add LinkedIn to your portfolio on a pullback. It is hands down, the top stock option available when it comes to the social media sector. Until Facebook, figures out how to yield more money from its 900 million users, I don't want it in my portfolio because it's simply not worth the headache.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.