LinkedIn: Networked for growth

Technically, it looks like institutions are building positions in this stock.

By TheStockAdvisors Dec 10, 2012 11:57AM

Photodisc PhotolibraryBy Timothy Lutts, Cabot Stock of the Month

Long-term, LinkedIn (LNKD) has a revolutionary offering that should propel earnings -- and the stock -- significantly higher.

The company focuses mainly on the people in a professional network and on giving them the tools and connections that enable them to do their jobs better. And it allows companies to find the talent they need. As a result, LinkedIn, which was launched in 2003, now has more than 187 million members.

Like many networks, LinkedIn is free for any professional to join. In fact, every addition of a new individual makes the network more valuable, so LinkedIn encourages this. But the real money for the company comes from users who pay for extras.

The number one extra is Talent Solutions, which accounts for roughly 55% of the company's revenues and is used by companies large and small. We have used the service several times to hire high-quality professionals, both local and remote.

Big companies, including 85 of the Fortune 100 and many professional recruiters, buy "seats" that cost $8,000 per year. The number two extra is Marketing Solutions. As on Facebook, these are basically ads targeted to users.

And number three is premium subscriptions, which give users more tools and connections to do their jobs better. All of these revenue generators are growing fast.

Revenues from Talent Solutions were up 95% in the third quarter vs. a year ago; revenues from Marketing Solutions were up 60%; and revenues from Premium subscriptions were up 74%.

LinkedIn is available in 19 languages, and 63% of members are located outside the U.S. so this is a truly global company.

LNKD became public in May of 2011 at $45 and shot up to $123 that same day. In the 18 months since, the stock has never been able to break cleanly above that $123 level -- even while growth metrics have been stratospheric!

There's some resistance to chew through in the $110 area, so some backing-and-filling makes sense here. But the stock's action suggests that institutions are hesitant to dump shares, and are actually working to acquire positions before an eventual breakout. We recommend that you do the same.

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1Comment
Dec 10, 2012 1:18PM
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Earnings would have to go up 40x just to get the PE down to a reasonable level. There is nothing in the pipeline great enough to do that. Every great idea for growth is already priced in and then some. How anyone can write an article about growth of stock with a PE of 300x is beyond me. Where is your sense of reality or are you looking for a repeat of the dot com bubble?
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