It's no coincidence that the financial fortunes ofLinkedIn (LKND) began to turn around when the Great Recession hit and sent millions of Americans onto the unemployment rolls.
LinkedIn operates an online professional network that lets members create profiles, communicate with other professionals, make contacts and put their names and resumes out there for job recruiters and hiring managers.
The company makes some of its money selling services to recruiters and employers who are on the lookout for job candidates. This part of its business is called Talent Solutions. It also sells premium advertising and premium subscriptions to employers and members.
LinkedIn had 187 million members and 13,784 corporate customers at the end of last quarter. Both of those figures have more than doubled over the past couple of years. The company announced today that it surpassed the 200-million-member mark.
And LinkedIn's earnings and sales have reflected that growth. Much of the recent financial momentum actually got its start a few years ago, when the recession and financial crisis put millions of people out of work.
Tools to help workers find jobs -- and recruiters find workers -- were in great demand.
"All of a sudden, the labor market became as candidate-rich as it had been in generations, especially among professionals," said Randall Reece, an analyst at Avondale Partners. "There was a sea change that happened with the Great Recession."
Before then, LinkedIn was primarily known as a social network for professionals, a kind ofFacebook ( FB ) for the white-collar crowd. The company was founded in December 2002. Although it was able to grow its top line in its early years, it had a hard time turning a profit.
"They were hoping there would be a magical union of professionals who would collaborate, and that the network would generate value the same way it has in other businesses," Reece said. "But the social aspect of LinkedIn never really clicked a lot because there wasn't much interest in that sort of thing."
Over the past four years, however, LinkedIn has established itself as the 800-pound gorilla in the online job recruitment and placement business.
The company's sales have risen at least 81% the last two reported quarters, following a run of seven straight quarters of triple-digit gains. It has grown EPS in triple digits in three of the last four quarters.
Analysts see no reason LinkedIn can't maintain its robust financial growth over the next several quarters.
"LinkedIn is operating extremely well and has significant room for growth ahead, driven by the secular shift toward enterprise hiring, expanded field sales efforts and product innovation," JPMorgan analyst Doug Anmuth noted in a report on LinkedIn's third-quarter earnings.
The company's success is partly due to a business model that gives recruiters the ability to thoroughly research the marketplace of job candidates -- even those who aren't actively seeking a job. This feature is important because many recruiters and hiring managers prefer job candidates who are already employed rather than those who are out of work.
Most employment websites cater to active job-seekers, many of whom are unemployed.
"LinkedIn is an acceptable place for you to cultivate and maintain your professional identity," Reece said. "When you are updating your LinkedIn profile, a lot of employers don't perceive it as looking for a job. But if you're working on your (Monster Worldwide ( MWW ) profile, you're probably in the market for a new job."
Another advantage LinkedIn has over most rivals is its size, Reece says.
"There's really no competition in that area," he said. "A lot of companies are trying to build something that would rival LinkedIn's database in terms of size and quality, but they're just not even close. For now, nobody is in LinkedIn's league in terms of technology or technology investment."
These competitive advantages go a long way toward explaining why LinkedIn has rung up such robust financial returns in recent quarters.
The company logged earnings of 22 cents a share during its 2012 third quarter. That was up from 6 cents the prior year and well above the 11 cents expected by Wall Street analysts.
Revenue gained 81% to $252 million, ahead of estimates for $244.2 million.
"Talent Solutions and premium subscriptions drove much of the upside, and we're also encouraged by the strong engagement around new products," JPMorgan's Anmuth noted.
Redesigned Home Page
Those products include a redesigned home page and new services designed to increase the number of times users share or promote postings.
LinkedIn also has placed more emphasis on its mobile platform. About 25% of users accessed the site via mobile devices during the quarter, up from 13% the prior year.
"The last few months have been the most significant period of product development in LinkedIn's history, driving greater user engagement," Chief Executive Jeff Weiner said in a post-earnings conference call with analysts.
The challenge for LinkedIn now is continuing to grow its business as the unemployment rate declines and the job market tightens up, analysts say.
"We're probably a couple of years away from the labor supply and demand equation normalizing," Reece said. "But the company will have to add more value for recruiters when that happens."
One way the company is doing that, he says, is through its recent efforts to increase traffic by getting members more engaged in the site. He also says LinkedIn will have to be a "serious player" in online recruitment advertising when job candidates are in short supply.
The near-term outlook remains strong. Analysts polled by Thomson Reuters expect LinkedIn to post a 50% EPS gain when it reports earnings for the 2012 fourth quarter. They see full-year profit rising 78% in 2013 and 67% in 2014.
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