) recently released its Q2 2012 earnings. We are updating our
forecasts but there are a few key aspects of the earnings that we
believe should be of interest to investors. There is doubt that
growth across several metrics remains strong for LinkedIn as more
professionals and companies continue to adopt the platform. Even
though the overall company revenues grew by an impressive 89%, we
should not forget the small base for the growth.
In its relatively early stages, LinkedIn is bound to grow at a
high pace on its more targeted and social approach to recruitment.
We estimate that Recruitment Services & Job Postings division
constitutes close to 45% to LinkedIn's estimated value, and hence
its largest business. This is inline with the recent results where
revenues for this division grew by more than 100%, which is much
higher than that for its overall revenues.
See our complete analysis for LinkedIn
Furthermore, the company has close to 106 million unique monthly
visitors (excluding slideshare), implying 30% growth compared to Q2
2011. If we compare this growth to the overall revenue growth, we
conclude that overall monetization has improved and the revenue
growth is not merely a result of more members joining in.
While revenue and membership growth remains impressive, costs
are still a concern, at least in the short term. LinkedIn has
little direct costs and thus high gross margins. However the
company's SG&A and R&D costs that are quite high at the
Over time, LinkedIn will be able to leverage its higher base to
bring these costs down but, for now, it seems these costs are
likely to remain high. In fact, sales and marketing costs, the
biggest component, increased as proportion of revenues compared to
Q2 of 2011. LinkedIn has also stated that taxes are likely to
remain high in the short term.
Investors should also be cautious about LinkedIn's
profitability. For the short term, the costs are likely to remain
high and the stock seems quite expensive as per our estimates.
Refer to our previous article
Why LinkedIn Is Dramatically Overvalued At A Near
to understand why the company may be overvalued currently.
Our current price estimate for LinkedIn stands at
, implying a discount of about 60% to the market price.
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