Better Targeted Ads Should Lift LinkedIn Ad Pricing Levels


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LinkedIn (NYSE:LNKD), which gets about half of its stock value from its recruitment services and job postings business, also derives about 28% of its value from advertisements and marketing. Revenue per 1,000 page views ( RPM ), a parameter used to measure ad pricing, is an important metric for the online ad market. In this space, LinkedIn competes with big names like Facebook, Yahoo (NASDAQ:YHOO) and Google (NASDAQ:GOOG).

We currently maintain a $30 price estimate for LinkedIn stock , which suggests that LinkedIn's current market valuation is unjustified (see LinkedIn's Valuation as Facebook of Recruiting Hard to Justify ).

More Targeted Approach Should Lift LinkedIn's Ad Pricing

LinkedIn's RPM has declined over the last few years from around $5.2 per 1,000 page views in 2007 to $4.4 per 1,000 page views in 2010. However, we expect a rebound in ad pricing levels for LinkedIn as the company has started to focus on providing features to serve more targeted ads.

A few months back, the company introduced the self-service advertising offering named LinkedIn Ads, which allows advertisers to target people by specific job title, company name or LinkedIn Group, in addition to the previously available options of geography, job function, industry, company size, seniority, age and gender. This feature allows companies to show ads only to members most likely to purchase their products or services.

According to LinkedIn, customers who have launched campaigns with these new targeting options report click-through rates 3x to 4x higher than other campaigns. Click-through rates have a direct correlation with the advertisement RPM rates, and hence LinkedIn should benefit from this increase.

See our complete analysis for LinkedIn stock here

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Investing Ideas , Stocks , US Markets
Referenced Stocks: RPM

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