LinkedIn CEO: Promoted posts key to mobile success
The company eclipsed Wall Street's expectations as second-quarter revenue jumped 59% and membership growth remained robust.
By Paul Toscano
LinkedIn's (LNKD) new strategy of surfacing sponsored posts in the feeds of its users is working right now -- and is key for social companies looking to generate revenue on mobile devices. That's according to Jeff Weiner, the company's CEO, who appeared on "Squawk on the Street" Friday.
The biggest challenge on mobile, Weiner said, is that there is "limited real estate."
"For a number of websites, the challenge has been navigating the transition from desktop to mobile in terms of advertising," he explained, although this only represents one of the company's three revenue streams.
For advertising, LinkedIn's solution is a new product, called "sponsored updates," which will promote posts from advertisers in the feeds of LinkedIn users. Weiner said the company believes that this strategy "makes sense" and offers higher levels of engagement to advertisers.
However, users may fear that their feeds will be clogged with unwanted messages, something LinkedIn is keen to avoid. Facebook (FB) has been criticized for promoting irrelevant advertising to its users in the past, and the idea of unwanted "spam" is widely considered to create bad user experiences.
Weiner explained sponsored updates will be normal content that companies would post for their followers, but also exposes these posts to LinkedIn members that are not currently subscribed to them. In addition, targeting and relevancy will help reduce any nuisance these sponsored posts will create for users, he said.
LinkedIn eclipsed Wall Street's expectations with second-quarter revenue jumping 59%, as they reported robust membership growth, which increased at the fastest pace since 2011. The company raised its full-year guidance, although it gave a lower-than-expected forecast for the third quarter.
In the second-quarter it booked revenue of $363.7 million, above a consensus estimate of $353.8 million. Excluding certain items, it reported earnings of 38 cents per share for the quarter, handily beating expectations of 31 cents per share.
The site now has 238 million users, a 37% increase from a year ago and a 9% increase from the first quarter.
"Our growth team has really done a great job with optimizing the site, so it makes it easier for people to register, to import their address book and for them to also invite other new members into LinkedIn," Weiner said. "That creates viral loops."
Of the 30 analysts covering the company, none currently hold a "sell" rating on the stock. Ken Sena, managing director at Evercore Partners, has a $250 price target for LinkedIn and spoke to "Squawk on the Street" on Friday to share his views on the company.
"As you look at the network and the fact that people continue to update their pages more and more, the opportunities stand to grow," Sena said.
Sena justifies his $250 price target -- which would place the company's price-to-earnings ratio even higher than its current 657x level -- by accelerating growth metrics and the fact that the company is still putting money to work, to grow the business. "Right now, they're in the investment phase still, so you're really looking beyond the P/E story," he said. "I think investors are willing to look at it on the basis of revenues."
User membership, engagement and the entrance into new markets are all positive signs for the company, he said, and "stands to be a big opportunity" for the company.
Although Linkedin's advertising revenue growth wasn't a strong as social media giant Facebook, Sena said that Linkedin's transition from desktop display ads to sponsored update ads holds promise, since these posts will also be available on mobile. "They're just sort of at the beginning of that transition," he said.
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