LinkedIn Posts Solid Growth Driven By Higher Member Engagement

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LinkedIn ( LNKD ) posted promising results in the third quarter, with revenue rising by 45% annually to $568 million. While the company's stock fell immediately after the earnings announcement, it has risen by over 10% since then. Profitability also improved in non-GAAP terms, with adjusted EBITDA margin expanding by 300 basis points year over year to 27%.

LinkedIn is taking various steps to enhance member engagement on the platform, such as redesigning member profiles, growing the mobile ecosystem and publisher network, strengthening jobs listings and foraying into newer geographies. These measures have started to show results as several engagement metrics saw acceleration in growth over the third quarter. Together with the introduction of new targeted ad products, we expect these measures to push up monetization in the future as well. LinkedIn's management forecasts revenue to be between $600 million and $605 million in Q4, and we think the company can easily beat this guidance.

We are in the process of revising our $154 price estimate for LinkedIn's stock.

See our complete analysis for LinkedIn

Progress Seen Against Growth Strategies

LinkedIn's strategies led to increased user engagement during the third quarter - cumulative members rose by 28% to 332 million. Unique visiting members and member page views grew by 16% and 28% annually respectively in Q3 as compared to 13% and 22% in the previous quarter.

So how did the strategies play out during the third quarter?

LinkedIn is increasing the number of job listings on its platform to bolster its value proposition. Earlier in the year, it decided to aggregate job listings from other sites, in a feature called 'Limited Listings'. Until recently, it carried job openings only from U.S companies., but now it has added jobs from throughout the world. Consequently, the number of job listings has increased from 1 million at the end of last quarter to 2 million currently. We expect this strategy to drive member additions in the coming quarters as it will pull active job seekers to the platform.

LinkedIn's mobile strategy continued to gain traction during the third quarter. The contribution of mobile to overall traffic has increased from 43% in Q1 to 47% in Q3. Its mobile apps including 'connected' and 'Job Search' witnessed healthy usage growth during the quarter. The publishing platform which has now been rolled out to 100 million members is also fueling higher engagement. The number of weekly long-form posts reached 40,000 in Q3, and once this platform is to opened to all members, it will further drive traffic on the site.

Expansion across geographies and demographic groups are other initiatives that are propelling LinkedIn's growth. China has become one of the key growth markets for the company - LinkedIn has seen millions of member additions from the country since it a launched a simplified Chinese site at the beginning of the year. Students are also increasingly flocking to the platform as LinkedIn launched new tools in 2014 to aid college students and university aspirants in choosing universities, colleges and courses.

Strong Demand Across All Segments Was Recorded During The Third Quarter

As we expected , LinkedIn saw broad-based growth across its segments during the third quarter. Talent Solutions grew by 45% year-over-year in Q3, accounting for 61% of overall sales. A solid rise in customer additions drove this increase, and we expect this factor to stay as LinkedIn is ramping up its sales workforce. A price hike in the mid-single digit range was also announced for new contracts and renewals post January 1, 2015 and we think this could positively impact revenues next year. ((LinkedIn's ( LNKD ) CEO Jeff Weiner on Q3 2014 Results - Earnings Call Transcript, Seeking Alpha, October 30, 2014))

'Marketing Solutions' saw revenue growth of 45%, which was attributable to high demand for sponsored updates and contribution from the recently acquired Bizo business. We expect these factors to drive revenue growth within the segment in the fourth quarter as well. While 'Premium Subscriptions' recorded 43% sales increase in Q3, the growth rate could slow down in Q4 as LinkedIn steps up free trials on the platform over the coming quarters.

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

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

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