LinkedIn (
LNKD
) will report its Q4 2012 and full year results on February 7, and
investors will look forward to certain key metrics, including
revenue growth, user base growth, the company's performance in
international markets and monetization growth. We believe that
LinkedIn has been trading at a high valuation as indicated by its
high P/E and a significant premium over our price estimate. This
implies that the market is expecting high growth in the near term
and whether or not LinkedIn's results will point towards such
growth will be interesting to see.
See our complete analysis for LinkedIn
Expect Good Revenue Growth Driven By International
Expansion
We expect LinkedIn to showcase another quarter of high revenue
growth driven primarily by international expansion. Close to
70% of LinkedIn's new users came from international markets in Q3
2012. At the end of Q3, about 63% of LinkedIn's total user
base was international. On the revenue front, international markets
accounted for only 36% of total revenues implying that there is a
significant opportunity to improve monetization. In Q4, LinkedIn
reached several international subscriber milestones such as
surpassing 1 million members in Malaysia, 1 million members in
Denmark and 2 million members in South Africa. Overall, LinkedIn
crossed 200 million members worldwide.
Job Postings Growing Fast
LinkedIn's job postings are increasing rapidly and we expect the
company to report growth for its recruitment solutions business
segment. Last month alone, job postings (at any given time)
increased from close to 160,000 to over 200,000. This happened
despite the launch of Facebook's (
FB
) social jobs.
We believe that the company has a tremendous opportunity with
job postings if it continues to execute well. A market for 3 to 6
million monthly job openings exists worldwide currently and there
is significant upside potential to our price estimate if LinkedIn
can tap into even a quarter of this market opportunity (see
What's LinkedIn's Opportunity In The Job Postings
Market?
). Perhaps the market is expecting such stellar performance for
LinkedIn given that the market price is much higher than our
current price estimate.
About half of LinkedIn's value comes from recruitment services
and job postings. This business includes premium membership for
companies that gives them access to special screening tools as well
as job postings which are similar to online job postings from
players such as Monster (
MWW
). We estimate that LinkedIn will earn close to $240 million in
revenues from job postings in 2012, with annual job postings
amounting to ~1.6 million. That's roughly 130,000 job postings per
month (job postings on LinkedIn usually stay for a span of 30
days).
Looking Forward To Details On Progress Of Sales
Navigator
During its last earnings, LinkedIn stated that it has been
experimenting with a new feature called Sales Navigator and that
the initial results have been promising. We look forward to the
company's progress on this front.
Sales Navigator can be a useful product for LinkedIn as it helps
sales professionals in better targeting customers, building
relationships and marketing their products. The search includes
some advanced features that are not available to others and
professionals can establish alerts based on these. The essence is
that it will help companies sell their products to right
individuals based on preference, age, location, etc. Sales
Navigator can also be integrated with customer relationship
management (CRM) software that companies already use, and that
gives it a great advantage and appeal.
The software can also accelerate premium subscriptions depending
on adoption and utility. If we assume that LinkedIn can get close
to 100,000 customers signed up for Sales Navigator in next 2-3
years, it can add an incremental $50 million in annual revenues.
Furthermore, if the company can garner 1 million such customers by
the end of our forecast period, it can lead to $500 million in
additional revenues.
LinkedIn's Risks
LinkedIn's high revenue growth rate may not be sustainable in
the future. In addition to this, sales and marketing costs as well
as R&D costs remain a concern and competitive risks may not be
priced in. Although LinkedIn currently has a unique advantage of
mixing social networking with recruitment services, the barriers to
entry are low. Internet giants such as Google (
GOOG
) and Facebook have a vast amount of information and influence over
their Internet user base that allow them to create viable
recruitment portals which can pose a serious threat to
LinkedIn.
The market's optimism for LinkedIn is comparable to what Netflix
(
NFLX
) saw in early 2011 when its stock price soared to $300 riding on
the wave of high subscriber growth. But that wasn't sustainable.
Even though management's missteps were a factor in the stock's
slide, one cannot deny that the competitive picture has become
clearer for Netflix over the past year and several giants with deep
pockets have emerged as threats.
Our price estimate for LinkedIn stands $60
, implying a discount of about 50% to the market price.
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