LinkedIn Expansion In China Can Act As A Catalyst

| About: Microsoft Corporation (MSFT)
This article is now exclusive for PRO subscribers.

LinkedIn Corporation (LNKD) offers professional social networking and is the world's largest online professional network with more than 277 million members worldwide. The company is increasingly offering a more localized experience to its members by providing them with services in their local languages and this is driving strong growth in the user base of the company. Recently the company launched a Chinese language version of its website that is indicative of the company's efforts to propel forward in a rapidly expanding economy. In this article I will delve into the details regarding this launch and its impact on company. Investors' stance amidst the scenario will also be considered.

What China Has To Offer

LinkedIn has launched a beta version of its website that will serve as a testing ground. LinkedIn still has to receive a license to operate the Chinese version of its site that is dependent upon the company meeting certain conditions.

LinkedIn already had an English version of its website operating in China that managed to attract more than 4 million members in the country. Members from China represent 1.44% of the company's worldwide member base. The company aims to enhance its customer base in China from 4 million members to 140 million members. Establishing a Chinese language website will help the company expand one of the company's fastest growing user bases. In addition to this, LinkedIn is also entering a joint venture with Sequoia China and China Broadband Capital that will bolster the member base of the company. If we conservatively assume that the company manages to connect 140 million Chinese professionals then China's contribution to the company's member base will expand to almost 35% from the current 1.5%. These calculations are illustrated in the table below.

Data Source: Press Release

Along with the member base contribution China's expansion will lead the company in drawing more and more revenues from China and bolstering its top line. China is a part of the Asia Pacific region that contributed 8% to the company's total revenue in the 4th quarter of 2013.

Source: Earnings slides

China has a population that is quadruple that of U.S. and therefore offers enormous opportunities for companies to grow. China has an internet penetration rate of 42.1% which is growing at a rate of 9.9% every year. According to the 2012 figure, a new internet user is added to China's internet population every 1.6 seconds. By the end of 2013 internet users in China have reached a level of 618 million.


Despite the fact that China is a lucrative market due to its population it is also a tricky one. It has proven difficult for global companies like Google (NASDAQ:GOOG), Facebook Inc. (NASDAQ:FB), Yahoo (YHOO) and eBay (NASDAQ:EBAY) to benefit from this market due to the companies having clashed with the government. LinkedIn aims to avoid any such clashes and will therefore take extensive measures to protect member data and restrict some content in order to ensure that it adheres to state censorship rules. LinkedIn is striving to provide more Chinese professionals with a global platform and has agreed to adhere to the censorship rules. If the company does not show flexibility and disagrees to the government's censorship regulations it will face difficulty in running its transparent operations in China like Google and Facebook. That would have caused adverse effects to the company's top line and bottom line as well as deprive Chinese professionals a means of connecting with others on a global platform. In this scenario where Twitter Inc (NYSE:TWTR) and Facebook are blocked in China and Google is running restricted operations, LinkedIn has got a golden chance to deepen its footprint in the expanding economy leveraging on the new version of its website.

However, the company will have to face competition from some local sites that entered the market in the absence of U.S. social media companies in China. In order to compete favorably with established domestic players LinkedIn has appointed Derek Shen as its Head and Vice President in China earlier this year. Derek Shen has a wide experience in the field and can be called an industry veteran since he is the founder of successful internet company Nuomi. Having a local leader on the board with enormous experience will help the company understand and react according to the fickle dynamics of the internet environment in China. Accordingly, the company can amend its Western business model in time to cater to the immense requirements of Chinese professionals.


LinkedIn has the guts to turn market opportunities into realities. With the launching of its website in simplified Chinese, the company now supports a total of 22 languages globally. This means that the company recognizes the preferences of professionals worldwide to communicate in their native language especially in the business arena. That is what makes LinkedIn the first choice of a majority of professionals around the globe. Moreover the company is transforming itself into a full-fledged online hub for professional workers. LinkedIn has a long road ahead of it since achieving 277 million members and a large portion of the world is still not connected to the website. Therefore the company has to expand way more before it reaches its saturation point signifying room for the company to grow. The company's future outlook and enormous expansion opportunities in China tempt me to rate this stock a buy.

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

Business relationship disclosure: The article has been written by a Blackstone Equity Research research analyst. Blackstone Equity Research is not receiving compensation for it (other than from Seeking Alpha). Blackstone Equity Research has no business relationship with any company whose stock is mentioned in this article