Can LinkedIn Continue Its Exceptional Run?

| About: Microsoft Corporation (MSFT)
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Recently, LinkedIn (LNKD) introduced a series of new features on its website. The new features include LinkedIn contacts, endorsements, and the LinkedIn Influencer program. With such initiatives, the professional networking site is trying hard to increase the overall user engagement and enhance its already massive user base of 238 million. Such initiatives, coupled with its growing presence across international markets, facilitated LinkedIn in posting robust second-quarter earnings.

During the past year, LinkedIn's stock price has paid out exceptional returns, however, many experts are questioning if the company can continue its remarkable run or its stock will soon run out of gas. Before we go deeper, let's take a brief overview of its second quarter earnings.

Snapshot of the second quarter

During the second quarter, LinkedIn posted revenues at around $363.7 million, up by 59% year-over-year, while the net income was reported at around $3.7 million. It should be noted that revenues generated through international markets account for 38% of LinkedIn's overall revenues. Therefore, 76% growth from the Asia-Pacific region is significant for the company.

Further, LinkedIn's talent solutions business, which represents 56% of its total revenues, posted sales at around $205 million, up by 69% year-over-year. Even more importantly, the company provided its corporate solutions to 20,256 companies, which is a 65% year-over-year increase.

LinkedIn's marketing solutions business is undergoing a key transition, as it is shifting from larger custom deals to a more scalable model. This segment posted $85.6 million in revenues, up by 36% year-over-year, and represents 24% of its total revenues.

Growth rationale

During the second quarter, LinkedIn's membership base grew 37%. The professional networking site has made various changes to its current platform in order to spur growth. The company is primarily focusing on international markets, which now accounts for 65% of its overall revenues.

The unique visitor count stood at around 189 million during the second quarter. However, after discounting for SlideShare, the unique visitor count stood at around 143 million, which is a robust 34% year-over-year growth.

It should be noted that SlideShare is a slide hosting service, which was acquired by LinkedIn during the previous fiscal year for $119 million. Going forward, LinkedIn plans to take several initiatives in order to monetize the SlideShare platform and integrate the service as a core part of LinkedIn content marketing.

Furthermore, LinkedIn re-introduced an improved version of its app for iOS and Android operating systems. As a result, there was a 40% increase in user engagement through the introduction of the new app.

LinkedIn recently launched the all new LinkedIn Influencer program, which is a publishing platform for popular leaders such as Bill Gates and President Obama. This allows the professional networking site to offer engaging content to its users and bolster internet traffic. Additionally, LinkedIn also launched the all new Sponsored Updates, which allows advertisers to place relevant ads directly into the user feeds.

The company is shifting its focus towards content distribution and marketing through the mobile platform. During the second quarter, 33% of its unique visitors came through mobile apps, compared to 21% same quarter previous year. LinkedIn is consistently expanding its mobile offerings, which is exhibited by its recent acquisition of a mobile news reader and content distribution app, called Pulse, for $90 million.

Competitive landscape

Monster (NYSE:MWW) is a direct competitor to LinkedIn. Recently, Monster announced its second quarter earnings. Its revenues for the quarter stood at around $200 million, while the EBITDA stood close to $38 million. According to Trefis, Monster derives approximately 55% of its revenues through its career services offered across North America.

With FED likely to keep the interest low unless the unemployment level falls below the 6.5% mark, Monster is expected to witness reasonable growth across the North American region going forward.

However, after the company announced its second quarter results, its stock fell sharply on account of poor international business. The like for like revenues during the second quarter slumped 11%, as the economic environment across Europe remained uncertain. A poor economic environment coupled with strong competition offered by LinkedIn is negatively impacting Monster's overall growth.

Going forward, Monster plans to restructure and abandon its operations in unprofitable markets such as Latin America and some parts of Eastern Europe. This is expected to control its cost in the near term; however, such efforts may not be sufficient enough to spur any organic growth. I believe the job site will remain troubled for the foreseeable future, as the company still operates on an outdated business model.

Facebook (NASDAQ:FB) may not be a direct competitor of LinkedIn, however the company does operate in a parallel industry. Similar to Monster, Facebook also offers professional online recruiting through its Social Jobs. However, recently Facebook made a noticeable entry in the online restaurant reservation industry by joining hands with OpenTable. This move is expected to add another revenue stream to Facebook's consistently widening channels.

After announcing the second quarter results, Facebook's stock price has witnessed a significant surge, as the company exhibited robust growth in its ad revenues. With growing popularity of social networking sites, several advertisers are now drifting towards Facebook as their preferred medium for advertising, predominantly due to the high number of clicks.

Going forward, Facebook is expected to roll out its all new video ads later this year. According to the Wall Street Journal, the 15 second clip which will be available both on the web and smartphones is expected to cost around $2 million to advertisers.

I believe, if Facebook manages to successfully rationalize such high advertising fees and offer high value to potential advertisers through its massive global reach, then going forward, I am certain we will witness a massive surge in its overall ad revenues.

Key takeaway

LinkedIn is consistently adding more features to its platform in order to enhance user engagement. Other than offering features such as add photos and videos, the company also offers Sponsored Updates, which is expected to bolster its ad revenues.

LinkedIn reported ad revenues in excess of $250 million during the previous fiscal year. With its unique visitor count expected to escalate even more rapidly during this fiscal, the revenue from this division are primed to grow at a healthy rate.

During the previous fiscal, revenues generated through its recruitment services division stood at around $525 million. Given the growing popularity of this service among job seekers and big corporate clients, investors can expect big growth within this division during the fiscal 2013. At present, LinkedIn's stock looks rich, and its revenue growth is likely to continue at least for the next two quarters. Therefore, investors should hold on to LinkedIn's stock, as robust growth across the international markets is likely to continue.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.