Why LinkedIn looks poised for growth

Shares in the network for professionals have outperformed all other social media IPOs. Don't expect the stock to slow down anytime soon.

By TheStreet Staff Jan 2, 2013 3:50PM

LinkedIn logoBy Rocco Pendola, TheStreetthestreet logo

 

There's no such thing as a sure thing in the stock market. Just look at Apple's (AAPL) performance over the last months of 2012. It is particularly dicey to speak of "sure bets" in the social/Internet space. Emotions, noise and media-driven hysteria often dictate what happens with these names.

 

Consider Facebook (FB), which was adored by the media before its IPO and loathed after it. It got so bad that people were ripping Mark Zuckerberg, the company's co-founder and chief executive, for taking a honeymoon. Now, with the stock rising -- because things never were quite as bad as purported -- there's less hate.

 

But there's not a better-run Web company than LinkedIn (LNKD), the online network that helps professionals find jobs, each other and business opportunities. The Mountain View, Calif., company hosted its earnings call with analysts in November, hinting at how it will use to content to pave the way for continued growth.


Opening the door to premium services

In his opening remarks, LinkedIn CEO Jeff Weiner talked about engagement across the platform, focusing on home-page growth. 


" . . . we're seeing materially higher levels of engagement with home-page use, up more than 60% since its introduction, and status updates recently reaching all-time highs," Weiner said. "The increased engagement on the home page also benefits more than 1.3 million third-party publishers that enable members to share content through the LinkedIn platform."

 

TheStreet is one of the third-party publishers that gets its articles picked up by LinkedIn. When LinkedIn Today, the company's home-page content product, runs one of TheStreet's stories, it significantly increases page views and engagement on the website.


Just a few months ago, LinkedIn wasn't even on most media companies' radar. They've come on strong. And this focus on content helps drive LinkedIn's core revenue lines.

 

When one analyst inquired about LinkedIn's content strategy, Weiner noted that LinkedIn operates a stickier ecosystem today than it did six months or a year ago. As LinkedIn becomes more useful, it becomes a daily habit for current and prospective members, thereby increasing the likelihood that these users will click an ad or buy a premium subscription.


Exploding internationally as well 

LinkedIn continues to grow in the United States, where year-over-year revenue was up 73% in its most recent quarter. But it's also exploding internationally. The company operates in nearly 200 countries, and its website has 160 million users.


Third-quarter revenue between 2011 and 2012 popped by 117% in Canada, Central America and South America; 89% in Europe, the Middle East and Africa; and 108% in the Asia-Pacific region. (Numbers courtesy of LinkedIn's most recent 10-Q filling).

 

Mobile traffic, as well as engagement, continues to grow exponentially.

 

Skeptics question social Web companies about long-term sustainability. How can you ensure that you do not outlive your usefulness? It's a great question, and there's never a definitive answer.

 

Investors need to look at factors such as how quickly a team can implement new solutions that actually do what they're supposed to do (content drives engagement; engagement leads to premium subscription revenue) and who's in charge.

 

While its lofty multiple might hold it back, don't be surprised if another social player or social wannabe takes LinkedIn out. It would be a valuable complement to a wide-ranging swath of social or new media stables or upstarts.

  

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1Comment
Jan 4, 2013 11:00AM
avatar

The company may grow but the stock isn't going to grow with it. It is already priced for growth with a PE in the hundreds. Last I checked, earnings would have to go from pennies to $8 to justify TODAY'S price. How long will that take? If you are still silly enough to think the stock can grow beyond the ~750x P/E it trades at today, look at the insiders. You know who I mean; the people running the "not a better-run Web company " (the fact that statement included "Web" is telling since most "Web" companies seem to be run by tech geeks not really fitted for a CEO job i.e. Facebook and Zanga so not a lot of competition for the top spot except maybe Google and Yahoo). Insiders have been unloading stock pretty much every single month since the IPO including 27M in November and 50M in December. If the company was so great, if the leaders were so confident, if there was so much growth potential to qualify for a P/E of 750x and still buy the stock, why are insiders selling by the MILLIONS every single month?

 

This is like the dot com bust all over again!

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