In my opinion, stock prices are usually a poor way of determining the future or accurate value of web based companies, but the 13 percent increase in LinkedIn shares seems to be right on target.
LinkedIn’s sales and profits exceeded analysts’ expectations in the third quarter of 2014 with revenues rising to $568.3 million compared to a projected $557.7 million, and it was reported that profit excluding certain costs hit $.52 per share versus an expected $.47. LinkedIn is also currently leaving other social networking platforms in the dust in terms of trading. According to CNBC, it is trading at just shy of 160 times forward earnings while Facebook is trading at 70 times and Google is trading at 23.
This has raised some eyebrows and caused some to voice concerns about whether the company can maintain its growth, but there are several indications that it will be able to:
- LinkedIn is increasing its footprint in business and B2B networking
- They’re focusing on creating new tools for users, including a variety of new mobile solutions
- The company is having success in other large markets, such as China, something other social networks struggle with
LinkedIn is determined to be more than just for recruiting
While LinkedIn is known as the recruiting platform, and Talent Solutions is still the company’s main source of income, premium subscriptions are also a solid source of revenue and the Marketing Solutions division is offering strong performance as well. Both Talent Solutions and Marketing Solutions saw a 45% increase, with $344.6 million and $109.2 million in income, respectively; premium subscriptions rose to $114.5 million.
While premium subscriptions and Marketing Solutions combined don’t even come close to the income provided by Talent Solutions, both of these revenue streams offer LinkedIn room to grow. The company intends to become a major publishing platform, and networking is expanding to include B2B opportunities as well as bringing employers together with talent.
Chief Executive Officer Jeff Weiner has stated that LinkedIn plans to study how visitors use the site in an effort to boost the amount of time users spend on it. Clearly, this has been something that the company is good at as we can see when we look at the growth of both its member base and page views.
LinkedIn looks to China and beyond
Let’s face it; nobody wants to follow in MySpace’s footsteps and start hemorrhaging users after being called the next big thing. While LinkedIn is clearly in no danger of this happening anytime soon, they don’t appear to be taking any chances, and they recently launched a Chinese version of the website. In the last quarter, membership has increased by 6.1 percent to 332 million, and according to GuruFocus, 75% of new subscribers came from outside of the United States.
Images taken from the LinkedIn 2014 Q3 Earnings Slideshow