LinkedIn's CEO Discusses Q3 2012 Results - Earnings Call Transcript

 |  About: LinkedIn (LNKD)
by: SA Transcripts


Good day, ladies and gentlemen, and welcome to the LinkedIn Third Quarter 2012 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) And as a reminder, this conference is being recorded.

I would now like to introduce your host for today, Matt Sonefeldt, Senior Manager of Investor Relations. Sir, please go ahead.

Matt Sonefeldt

Good afternoon and welcome to LinkedIn’s third quarter of 2012 earnings call. Joining me today to discuss our results are CEO, Jeff Weiner and CFO, Steve Sordello.

Before we begin, I would like to remind you that during the course of this conference call, management will make forward-looking statements which are subject to various risks and uncertainties. These include statements relating to expected number of growth in engagement, our product offerings including mobile, results of our R&D efforts including the acceleration of our product deployment process, revenue, including revenue growth rate, 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, particularly the section entitled Risk Factors in our quarterly and annual reports and we refer you to these filings.

Also, I would like to remind you that during the course of this conference 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 the press release. This conference call is also being broadcast on the Internet and is available through the Investor Relations section of the LinkedIn website.

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

Jeff Weiner

Thank you, Matt, and welcome to today’s conference call. I will start by summarizing the operating results for the third quarter and I will recap some of the highlights and key milestones since our last call. I’ll then turn it over to Steve for a more detailed look at the numbers and outlook.

The third quarter saw continued strong growth in key operating and financial metrics. Just as importantly, the last few months marked the most significant period of product development in LinkedIn’s history. This accelerated pace of innovation is fundamental to our goal of driving greater engagement on our platform.

For Q3, overall revenues grew 81% to a record $252 million. We delivered adjusted EBITDA of $56 million translating to non-GAAP EPS of $0.22. At the end of the third quarter, cumulative membership grew 43% year-over-year to 187 million members as we continue to add approximately 2 member sign ups per second.

With regard to engagement, as measured by comScore, LinkedIn totaled 143 million unique visitors in September when including SlideShare, making us the 25th most visited web property in the world. When excluding SlideShare, we averaged 110 million monthly unique visitors during Q3, growing 25% year-over-year. Additionally, we generated 8.9 billion page views excluding mobile, growing 17% year-over-year.

Our internal engagement metrics, which include mobile, also continue to show solid growth. Unique visiting members grew approximately 22% for the quarter. More importantly, member page views grew approximately 44% in Q3, well in excess of unique visitor growth, indicating that members are becoming increasingly active on Linkedin.

Improvements in our underlying technology infrastructure are enabling accelerated product innovation around the themes of simplify, grow and every day. Simplify is all about making it easier for our members to unlock value from the core products and services we already offer. Earlier this year, we redesigned several of our pillar products, including our mobile apps and Linkedin Today to offer more unified user interface and more relevant and social experiences.

In Q3, we applied the same approach to other core products including the Homepage, now rolled out to virtually all LinkedIn members, we're seeing materially higher levels of engagement with Homepage page use up more than 60% since it's introduction and status updates recently reaching all time highs. The increased engagement on the Homepage also benefits more than 1.3 million third-party publishers that enable members to share content through the LinkedIn platform.

And just a few weeks ago, we launched our most ambitious redesign of a pillar product to-date, the LinkedIn Profile, the professional profile of record. Profiles on this site are viewed as many as 25 million times daily. Our new profile page makes it easier for members to define and maintain their identities, build their networks and gain valuable professional insights. We just began introducing the new Profile to members in mid-October and it is being gradually rolled out to the entire network.

Our second theme is grow, which has two connotations for us. First, it means continuing to grow our global membership and second, it means growing our monetization efforts and ways to benefit both members and customers. Product localization continues to be a strong driver of member growth. We added six new languages to our iPad App and the desktop version of the site is now available in 19 languages. Of the more than 13 million new members added during Q3, more than 70% came from outside the U.S., underscoring LinkedIn’s global reach; 63% of all LinkedIn members are from international markets. Additionally, with the opening of our Dubai office, LinkedIn is now operating in 26 cities around the world.

With regard to the growth of our monetization offerings, last month we held our annual Talent Connect conference which brought together more than 2,000 recruiters from over 1,100 companies. We introduced several enhancements to our flagship Recruiter platform. We also launched sponsored jobs which enables companies to promote key positions to the right talent and we unveiled LinkedIn Talent Brand Index, a free tool that helps our customers benchmarking measure their talent brands.

Also at Talent Connect, we announced that we changed the name of this product line from Hiring Solutions to Talent Solutions. Building talent goes beyond sourcing and hiring to branding an engagement and this name change better reflects the value we bring to our customers.

At Brand Connect 2012, our annual event for marketers, we introduced redesigned company pages for the more than 2.6 million organizations with an active company profile on LinkedIn. Company pages are at the center of the LinkedIn follow ecosystem which enables companies to engage with the professional audiences that are most valuable to them.

An increasing area of focus for us is the monetization of our mobile channel, where we continue to customize our existing talent, marketing and subscription product lines to our mobile experiences. We are now showing jobs in our mobile apps, continue to test display ads on our iPad App and are now enabling members to sign up and pay for premium subscriptions directly from their mobile devices.

Our third product theme is delivering value to our members every day. Since our last call, we have launched several major new offerings designed to keep our members coming back to the site to build their professional identity and gain valuable insights. We introduced them to a new and easy way for our members to recognize their colleagues for their specific skills. Since launching it broadly at the end of Q3, more than 200 million endorsements have been generated on LinkedIn. Additionally, since endorsements bring members back to their profiles, the number of members editing their profiles on any given day has more than doubled year-over-year.

We also launched Notifications, which alert members to activity relevant to their experience on LinkedIn. Since the rollout of Notifications and the new Homepage, we have seen a material increase in social gestures including record levels of comments, likes and shares. Comments specifically have increased more than 4X since June. These social gestures create a positive feedback loop and encourages members to continue engage on LinkedIn.

Finally, we unveiled two new significant additions to the LinkedIn Content Ecosystem. The ability to follow thought leaders on LinkedIn and the ability for those luminaries to publish long form content on this site. More than 150 of the most influential professional thinkers, CEOs and leaders are participating, including President Obama, Governor Romney, Richard Branson, Arianna Huffington, T. Boone Pickens and Deepak Chopra. Thus far the response has been overwhelmingly positive.

For example, Richard Branson is now being followed by more than 700,000 members and his first post has been shared on LinkedIn more than 36,000 times, received nearly 14,000 likes and generated more than 5,900 comments.

Mobile products are central to delivering value everyday and it remains our fastest growing consumer service. In Q3, an average of 25% of unique visiting members came through mobile apps versus just 13% a year ago. In the past two months, we introduced several new features to our iOS and Android Apps including the ability to add a profile, view notifications and visit company pages.

The value we create for members allow us to deliver useful offerings to customers of our Talent Solutions, Marketing Solutions and Premium Subscriptions products. And in Q3 these three diverse revenue streams all performed well.

Talent solutions grew 95% to $138 million as industry leaders continue to turn to LinkedIn to engage perspective talent for their organizations. Marketing Solutions was up 60% to $64 million as some of the world’s leading brands leveraged LinkedIn as the most effective way to target and engage with professionals. And premium subscriptions increased 74% to $50 million as we continue to focus on delivering the right services to the right members at the right time.

Lastly an update on our talent, which is our top operating priority. Despite our rapid growth to more than 3100 employees around the world, our culture and values have never been stronger and they provide a very solid foundation for continued success.

And now I will turn it over time Steve for a deeper dive into our operating matrix and financials.

Steve Sordello

Thanks Jeff. Before I discuss the results I want to remind you that my comments on growth rates will refer to year-over-year changes unless I indicate otherwise. Also non-GAAP financial measures exclude stock based compensation expenses, amortization of intangibles and the tax impacts of these adjustments. Please refer to our press release for the GAAP to non-GAAP reconciliation. We remain encouraged by the steady improvement and engagement and growth in our product lines, as you business continues to benefit from increased member interaction. Members increased to 187 million during the quarter with an increasing portion coming from outside the US.

We are specially encouraged by our growth in developing countries and over the past few months have announced hitting 15 million members in India and 10 million members in Brazil, our two largest non-US markets. As the member base grows, we are pleased with how those members are increasingly engaging with LinkedIn. Despite a difficult comparison versus last year, given the impact from our IPO and product improvements, comp score engagement metric remained solid with 25% year-on-year growth and standalone unique visitors and 17% page view growth excluding mobile.

By our own internal measures unique visiting members grew approximately 22% and page views generated by those members including mobile 44%, far in excess of unique member growth. We are hitting all time highs with a number of days the members are visiting both the desktop and mobile versions of LinkedIn, and this signals about our investment and engineering infrastructure and product development are showing positive returns.

Turning to the financial results, total revenue increased 81% to $252 million. Talent Solutions remains our largest and fastest growing product lines, increasing 95% versus last year to $138 million. Talent Solutions is now 55% of our total revenue base compared to 51% last year. Momentum with corporate customers remains healthy. We added over 1700 new customers during the quarter and now have over 13,700 enterprises on contract with LinkedIn. Average revenue per customer continues to increase as enterprises deepen their relationships across our product portfolio from recruiter to job listing to talent acquisition branding.

On a regional level, the US once again saw strong results with an increasing number of customers buying three or more talent products. In Europe more macro headwinds [muted] growth, existing customers are increasing their investment in LinkedIn and we still see significant headroom across the UK and Continental Europe. APAC growth also remained strong, although we have been affected by macro factors including the impact of China slowdown on our Australian customers as well as the economic challenges in India.

On the other hand, we are seeing nice early traction out of our newer Asian offices. Business with existing customers remains healthy as illustrated by key operating metrics, churn is down slightly relative to this point last year, as we benefit from increased investment in education and pipelining teams. Add-ons and renewals have increased sequentially throughout the year and have been particularly strong in the US.

LinkedIn continued to gain mind share with customers and members as a place to post and find jobs, and the number of listings grew in excess of 100% for the second straight quarter. We monetize jobs in both our field and online sale channels, and are excited about the recently announced rollout of sponsored jobs for both Enterprise and Self Serve customers.

And finally Job Seeker and Talent Finder subscriptions also maintained steady progress, contributing to a slightly larger percentage of talent solutions revenues in the third quarter. Turning to Marketing Solutions, it grew 60% year-on-year to 64 million representing 25% of total revenues compared to 29% in the year ago quarter.

Deal sales maintained its momentum behind new campaigns with blue chip customers and more product offerings, and these factors have translated to a rising average CPM relative to last year. Self Serve LinkedIn ad growth once again outpaced desktop page view growth. However LinkedIn ads has been impacted by the mix shift towards field sales, which reduces the inventory available for Self Serve and lowers growth relative to display ads.

And finally premium subscription revenues grew 74% to 50 million, 20% of total revenue this quarter the same percentage as last year. In the third quarter we saw a reacceleration in new subscriptions, given the strong engagement trends on LinkedIn. Insurance declined across our product offerings, while still early our Sales Navigator product continues to perform well on a relatively small base of business.

Moving to revenue by channels; field sales growth exceeded online sales for the second consecutive quarter, reflecting the strong relationships with our enterprise customers in both talent and marketing solutions. Field sales represented 57% of revenue during the quarter versus 43% for online. A year ago this mix was 53% field and 47% online.

The mix shift towards field sales represents trade-off. We gained greater visibility as our SAS product become a larger portion of our business. At the same time, these products carry a lower relative contribution versus our online products. As for geography international revenue growth again outpaced US growth despite the difficult macro environment in Europe and Asia.

International revenues increased 97% year-over-year to 36% of total revenues versus 33% last year. The US based businesses grew 73% year-over-year to 64% of revenues versus 67% last year. Turning to the non-GAAP income statement, profitability again exceeded our own expectations despite the sustained pace of investment as well as the relative mix shift towards the field sales channel.

Gross margin excluding depreciation and amortization was 87%, up from 84% last year. Sales and marketing was flat year-on-year and quarter-on-quarter at 31% of revenue. This line item has grown roughly in line with revenue growth as we have invested in sales reps, marketing and customer support.

As we indicated during last quarter’s earnings, we took steps to scale up R&D investments both to gain critical mass around existing priorities as well as to pull in investments on new strategic initiatives. R&D was the only operating expense line item that increased relative to revenue ending the quarter at 23% of revenue compared to 22% last year. And G&A as a percentage of revenue declined to 11% versus 13% last year.

Topline strength and increased scale contributed to a record adjusted EBITDA of 56 million in the third quarter, a 22% margin. This compares to 25 million in an 18% margin last year. Depreciation and amortization totaled 23 million slightly higher than expected, while stock based compensation was 27 million in line with the guided range.

Taxes were slightly lower than anticipated due to pretax income exceeding expectations in 2 million and one-time benefit. Taxes were 4.4 million on a GAAP basis and effective 66% and 12 million on a non-GAAP basis and effective 33% rate. We expect our GAAP and non-GAAP rates to remain structurally high for the foreseeable future, given the international tax structure build out and non deductibility of acquisition cost.

Starting this quarter, you can also find historic tax detail on the metrics we posted on our investor relations website. On the bottom line we generated 2.3 million in GAAP net income and $0.02 of GAAP EPS on 113.6 million fully diluted weighted shares. This compares to a loss of 1.6 million in net income and loss of $0.02 of EPS last year.

On a non-GAAP basis, earnings more than tripled to 25.1 million in net income and $0.22 in EPS, compared to 6.6 million and $0.06 of EPS last year. Our balance sheet remained strong with 677 million in cash, cash equivalents and short-term investments; again zero debt. We generated a record 88 million in operating cash flow up from 47 million last year.

CapEx was 34 million versus 29 million last year reflecting ongoing investment in both our data centers and global facilities footprint. In the quarter we generated a record 54 million in free cash flow. This is three times the 18 million generated last year. I will close the call with guidance for the fourth quarter and full year 2012.

In the fourth quarter we expect revenues between 270 million and 275 million, a range of 61% to 64% year-over-year. This effectively (inaudible) full year guidance to 939 million to 944 million, approximately 80% year-over-year growth.

For adjusted EBITDA we expect a range of 58 million to 60 million in the fourth quarter and approximately 22% margin. We now expect annual EBITDA of just over 200 million also at 22% margin. EBITDA guidance incorporates efforts mentioned last quarter to accelerate investment into the R&D organization around strategic initiatives including student, mobile, international and enterprise. We also expect sustained investment into the global sales force and marketing teams and higher than expected spending towards global office build-outs.

Finally margin guidance also reflects the seasonal mix shift to our field sales channel in the fourth quarter. We expect depreciation and amortization of 23 million to 25 million this quarter and now estimate approximately 80 million for the full year. For stock compensation, we expect 28 million to 30 million in the fourth quarter and expect to end the year in the 87 million to 89 million range. Stock compensation will come in higher in 2012 than we initially anticipated as a result of acquisitions, [refresher] grants and a higher share price.

We anticipate higher tax rates during the fourth quarter. On a GAAP basis, we expect our rate to approximate pretax income. On a non-GAAP basis we expect tax to be materially higher than our third quarter rate. As you saw in the last several quarters, our rates can be highly variable based on current levels of pretax income. For fully diluted weighted shares we expect to average approximately 140 million shares in the fourth quarter and an average of 130 million in 2012.

For the full year, we expect capital expenditures to be in the mid-teens as a percentage of revenues. To conclude we performed well in the third quarter on many fronts, strong member engagement helped drive sustained growth in our three segments. This growth combined with greater operating skills led to record levels of adjusted EBITDA, operating and free cash flow. We continue to benefit from strengthening engagement, larger market opportunities and strong growth across diverse revenue streams and we look forward to a strong finish to 2012.

Thank you for your time and we will now take questions.

Question-and-Answer Session


(Operator Instructions) Our first question comes from the line of Heath Terry from Goldman Sachs. Mr. Terry, your line is open.

Heath Terry - Goldman Sachs

I was hoping if you could you give us a little bit more color in terms of the sales rollout for, or the rollout for sales navigator, particularly the strategy that you have for beginning to more aggressively sell that product into enterprise. What the roadmap looks like and what you would suggest, we think about from a timing perspective in terms of starting to see more of that out in your customer based?

Jeff Weiner

Sure, its still early days we are pleased with the progress thus far. We are going to market with two channel approaches both sales subscriptions and field sales effort targeting larger enterprises. And thus far to date we have received very positive feedback from customers who are seeing strong return on investment and really able to manifest the value proposition there which is turning cold calls into one prospects by virtue of been able to leverage relationships within their company-workers and collogues networks.


And our next question comes from the line of Brian Pitz from Jefferies.

Brian Pitz - Jefferies

Can you give us a little color on the International? It looks like international revenue picked up as a percentage of total this quarter, any color on incremental softness from a macro perspective? And then a follow-on to the sales question, I know it’s early but longer-term do you think the broader opportunity on the sales side of organizations could actually be larger than that on a hiring side again over the very long-term? Thanks.

Steve Sordello

On the macro question, yeah, we continue to see strong growth both domestically and internationally. We had a particularly strong quarter this year in the US given that a more mature market. In Europe, we did see more muted growth and same in Asia. The slowdown in China is impacting some of the economies there. But when you take a step back and see the growth rates, Europe’s grown nearly 90% year-on-year and Asia is growing around 110% year-on-year. So it’s all relative and so we are still very much indefinite mood and excited about those market opportunities.

Jeff Weiner

And then on the second half of your question, this is Jeff, in terms of the total addressable if you look at it based on the number of professionals within the segment, defined as sales people and business development professionals and you compare that to our talent solution segment, that's largely comprised of the recruiters and hiring managers, in theory, the sales segment is considerably larger as measured by the composition of our membership. So we do think it’s a large opportunity on a global basis but once again very early days.

Brian Pitz - Jefferies

And just one quick follow-up to that, would that mean the competition is bigger than given that some other big companies that are playing in that space or can you segment yourself apart from them? Thanks.

Jeff Weiner

Well, I think with regard to larger enterprise landscape, it’s more of an integrated effort. You know our Sales Navigator product is an application is now integrated into some of the larger CRM solutions on the marketplace. So with regard to the specific value proposition of leveraging colleagues, coworkers within your network I think that's somewhat unique in terms of the way we are approaching it.


And our next question comes from the line of Mark May from Barclays.

Mark May - Barclays

Just wondering if you could characterize the incremental growth in talent solutions revenue, kind of talk about it what portion came from new customers versus repeat customers and for the new maybe characterize the type of businesses that these are in terms of this average size of contract or average size of the company maybe based on their employee counts and then we are noticing that your advertising and marketing solutions CPM growth is quite impressive and your effective CPMs have already been quite premium to begin with so can you talk about what's driving that and how sustainable that is? Thanks.

Steve Sordello

On the talent solution side I think one of the great things this quarter we added 1,700 customers which is second largest fall in Q4 which is the strongest quarter of the year for us and we are able to maintain a record ARPU and that's really a factor of being able to continue to drive new business despite the fact that [S&P] is growing at the percentage last year S&P was probably 25%, this year its 30% and so we are deepening those relationships in being able to keep the same seats per customer.

At the same time, we are selling larger deals upfront. So we are selling more products, we are diversifying, its not just recruiter we are selling talent branding with some job spots, we just introduced this quarter sponsored jobs. So we are continuing to broaden that portfolio. So, we are really having a lot of success on the new business there. At the same time, the current base, when you talk about our add-on renewal rates net of return is continuing to be strong in the quarter, was actually up from last quarter. So (inaudible) was down in each of the markets on a year-on-year basis that we participate in. So on the talent solution side; we still have a lot of strong momentum. On the marketing solutions front, I think the CPMs, what we're seeing there is in particular the field sale of the organization starting to get some momentum as well. That’s where we had some strengths this quarter, continuing to build and so that’s, what we're able to, again, probably broaden the product portfolio on that side as well. We are able to sell more targeted ads and that’s pulling up the CPM.

Mark May - Barclays

And when we talk about the sustainability of that, your self-service solution is also effective as well, when you think about mix going forward and how that affects CPM, how should we thinking about it?

Steve Sordello

Well, any aggregate, we were core CPMs in the aggregate way of measuring it. The field sales will naturally have a higher CPM because of (inaudible) unless it’s in excess of it but field sales won't run in excess of it and currently we are growing faster on the field sale side of the business. The good news on the self-service side is we clearly have more demand than we have inventory and one of the reasons why the company we invest so heavily in product is to drive engagement and that marketing solutions find business having a product out there on the LinkedIn ad side, where you have more demand than you can fulfill. We see it as a good thing at this stage because we're continuing to build and as we drive more engagement, we will be able to reap the success out of that from a business perspective.


Thank you. Our next question comes from the line of Tom White from Macquarie.

Tom White - Macquarie

Just another follow-up on the enterprise opportunity as it relates to sales solutions, could you give any sort of color about what the mix is today self-service versus sort of field sales into that and then probably you guys planning to monitor the impact to the typically member experience from an increasing numbers of professionals using the platform and I understand you are looking to eliminate cold calls in favorable of leads but that seems like sort of fine line. So I am just curious how you guys are monitoring that? Thanks.

Steve Sordello

Hey Tom this is Steve I will take the first part, currently online, the online sales portion represents the following majority of that business. We have not pushed that heavily on the field so far, we have a handful of sales people that are starting to ramp, starting to build relationships with larger accounts but currently it’s online as the majority.

Jeff Weiner

With regard to the second part of your question, we always members first and so we take a very thoughtful approach to these kinds of monetization efforts and that includes in this case relevancy mechanisms that are designed to make sure that we are making the right matches. But at the same time, all members have the ability to mark a spam anyone who is starting to really get ahead of themselves in terms of their outreach efforts and we are going to continue to focus on making the most relevant match possible.


Thank you. And our next question comes from the line of Joseph (inaudible).

Unidentified Analyst

Two questions please, first can you talk a little bit about the delta [initialization] between international and domestic focus may be primarily on developed international? And then mobile versus desktop just kind of where are we in that conversion curve and how long do you think it will take to close that gap? And second may be you talk a little bit about elasticity of demand kind of pricing trends for hiring solutions in particular, when was the last time on you raised the prices and is there any plans to move prices short-term? Thank you?

Steve Sordello

On the international phones, I think in developed economies they are quite similar. So the US if you talking US, Western Europe, the dynamics are pretty similar, its in the underdeveloped countries, the country such as India, where they are few years behind where the US is in terms of the market opportunity and some of the other country such as Brazil is a couple of years behind.

On the mobile versus desktop, we are a company where we do have plans in terms of monetizing on the global platform, we have not yet really released beyond some testing on the iPad products on that platform. So it’s still early day for us, you will likely see more there next year.

On the pricing front relative to recruiter and talent solutions, we have been building a strong value proposition with our customer based continuing to add products to the suite that we offer. And our approach has really been focused at this point in time on looking on optimizing the long-term and we focused on expanding that footprint as opposed to increase in the pricing. The last price increased we had was a couple of years ago and to the scale right now that still are focused is on expanding that footprint.


Thank you. And our next question comes from the line of Mark Zgutowicz from Piper Jaffray.

Mark Zgutowicz - Piper Jaffray

I echo again and the comment on CPM increase is pretty impressive, the question that I have surrounding that are, if you are seeing any sort of benefit from custom groups in that number or if that's still - maybe if you could talk just about the progress on that front. It seems to me its sort of a chicken or the egg, you know you’ll get more groups signing up as you have some more key names. So I am kind of curious if that sort of how you look at it? And also if you can maybe just talk a little bit about some learnings that you found from the iPad testing, I hear you said early days, so just trying to get a sense of what it is you are looking to see to before you sort of move forward with the mobile ad platform there? Thanks.

Steve Sordello

This is Steve, I’ll take the first question. Yeah we've had more success on the field sales side related to selling to larger blue chip customers more custom solutions in addition to additional products such as the follower products that we launched within the last quarter and those have higher effective CPMs in general.

Jeff Weiner

With regard to the second part of your question in terms of it being early days on the iPad. For Marketing Solutions, its really less about early days there; I think its just a question of time now and allowing the new product and the new go-to-market strategy there with our sales force to mature, but the response thus far to date has been positive and we are going to continue to ramp that up. I think the early days is probably a little bit more apropos in terms of smartphone where we continue to test and we are going to continue to take a thoughtful approach, but we are generating some good momentum with regard to the things we are working on internally.

Mark Zgutowicz - Piper Jaffray

Just to follow on that is, is there sort of a number of sort of active iPad users that would move that forward or is it still more of finding the right forms of advertising without disrupting that experience, trying to get a sense of the balance between those two?

Jeff Weiner

Sure. For the iPad again its really just a question of timing and allowing this new value proposition and sales proposition to mature, because the sales force is not out there in earnest and they are selling against it. For us, iPad engagement in total inventory and total page views is not as high as the smartphone application environment. But with regard to the real estate and the experience, the larger amount of screen space affords us the ability to really leverage very similar marketing solutions that we see on the desktop, on the iPad which is why that's where we started.

Steve Sordello

Yeah, Mark, I'll just leave one more comment on CPM since we had a couple of questions there, I think another portion is related to sales force execution and also in particular really starting to use (inaudible) management and optimizing whether the demand is for inventories, I think that's just beginning an opportunity for us to continue to go CPM by doing a better job, optimizing pricing on where the demand is.


And our next question comes from the line of William Bird from Lazard.

William Bird - Lazard

I was wondering if you could talk a bit about corporate solutions in the US; I just wanted to get a sense of where you think you are kind of in terms of your penetration and I guess what you believe growth is most dependent on prospectively, is it SMB adoption, increased spending by existing clients, etcetera?

Jeff Weiner

So we haven't broken it down by region when we talk about our [TAM]; macro level, we believe in the US there is about 20,000 companies that have 500 or more employees and we think that’s a sweet spot number for us for our solutions. So you can look at that as the US based TAM in terms of number of companies. Internationally, US represents about 25%, that’s says about 50,000 to 100,000 companies, and we are at just south of 14,000 companies today. So that can give you an idea in terms of new business. It is steering more towards S&B that continues to grow as a percentage of our customer base. The other thing to consider is how much penetration within existing account and we believe, we have about clear headroom based on the analysis we’ve done within the US in terms of head rooms based on our current product set.


And our next question comes from the line of Tim Mchugh from William Blair. One moment while we open your line.

Tim Mchugh - William Blair

Just wanted to ask if you could give us a little more color to the macro environment you talked about. It seems some impact in Europe and a little bit in Asia but obviously we're still growing at a very high rate. So I don’t understand, what is the impact, is it longer sales cycle or our customers are actually buying fewer things or can talk about the rate a little slower than it was before and that’s all. Just kind of want to understand that.

Steve Sordello

Yeah, I think it's most represented in longer sales cycle that we are seeing in those two particular regions. Again, highlighting the absolute growth rate, it's all relative to what we would see in a stronger environment. As you mentioned, we're seeing some of the other characteristics such as churn ticked down at least on a year-on-year basis in those countries and another thing we're seeing broadly. I think when you are in a difficult market like that, similar to what you saw in the US back in 2009, we are taking shares in those markets. If you look at the number of hires touched through LinkedIn year-on-year, it’s more than doubled and so the growth rate is relative when we say words like we did, but we are in those environments and we are taking share of which we view as a good obviously long-term thing for LinkedIn.


And our next question comes from the line of Marin Pyykkonen from Wedge Partners.

Marin Pyykkonen - Wedge Partners

Looking more into 2013, can you make some comments I know you won’t break this out in terms of numbers exactly, but just curious in terms of the sales emphasis as you look at next year in terms of opening new offices, going deeper and if you have any comments you can make in light of that in terms of average number of seats per corporate customer obviously focusing more on talent solutions here, and just kind of curious to get a - I know it’s sum of both and curious about the tilt on the emphasis between going deeper versus expanding geographic footprint especially international? Thanks.

Steve Sordello

Yeah, I mean we will prefer to talk about 2013 on our next quarter call. So we are going to defer questions on 2013.


And our next question comes from the line Douglas Anmuth from JP Morgan.

Douglas Anmuth - JP Morgan

Just wanted to ask a few things. Just want to get your sense on engagement. We’ve seen some deceleration, obviously it’s still very fast growth in terms of page views but decelerating rates and at the same time it feels like you are very innovative in terms of the products you are rolling out and the pace at which you are doing things. So wanted to get your sense on engagement, how you feel about it on the platform? And then also can you update us on the $8 million to $9 million that you mentioned last quarter just around the wide share impact and also the increased spending on security is that still contemplated in your back half basically 3Q and then of course in the 4Q?

Jeff Weiner

This is Jeff; I will start with your question about engagement. So we have actually seen some pretty strong improvements in the rate of growth for some of the premium products that most recently been refreshed. The comps score numbers were through September and the number of these most recent launches took place and didn't really reach a 100% of our membership until we were through most of the month in September and in October.

And as a result of the introduction of things like the new homepage, notifications, endorsements, and now [influencers], one of the nice benefits that we couldn't necessarily foreseen is the compounding effect of what happens when numbers begin to interact with multiple new products and services. So we are pleased with the acceleration we have seen in the growth rates of those products and services that have been most recently rolled out.

We are also seeing continued growth no deceleration at all with regard to mobile, in terms of mobile engagement. And again just to reiterate, we are seen now about 25% of weekly (inaudible) coming through mobile and we are encouraged by what we are seeing on that front.

Steve Sordello

And the only thing I would like to add there is that the comps in Q3 are somewhat, you are compelling to Q3 last year where we had the [IPO] impact that we talked last years to some other Q3 year-on-year growth rates will be impacted by that and as Jeff mentioned the beginning Q4 here is very strong. Related to the expenses that we had discussed last quarter, SlideShare is definitely in the numbers that we have talked about. The comp associated with the security breach is also partially in there that will also hit in Q4; we talked about that being a back half of the year expense. So those are also embedded in our costs.

Jeff Weiner

So with that we are going to conclude today's call. Thank you so much for your time and we look forward to talking again next quarter. Thank you.


Thank you. Ladies and gentlemen thank you for your participation in today's conference. This does conclude the program and you may now disconnect. Everyone have a good day.

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