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Why 'Facebook Of Jobs' LinkedIn Seen In Early Stages

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I t's been a landmark year for LinkedIn. In May, the online networker marked its 12th year in operation. Just recently, the company hit another milestone by enlisting 400 million members, cementing its status as the world's largest professional online network.

With those kinds of numbers, it often prompts worries about how big a company can get. Indeed, investors had concerns earlier this year aboutLinkedIn 's ( LNKD ) future growth in the wake of a major sales realignment and downward revisions to estimates.

But concerns were put to rest in the third quarter.

"Metrics were very strong across almost all metrics that matter to the company," Rob Sanderson, an analyst with MKM Partners, said in an interview with IBD. "There was an open question about sales productivity for a couple of quarters. The third quarter ended it."

Sanderson says it wasn't that LinkedIn was losing its way as the top professional online network before, though early on there were questions on how it would monetize the site. Since it wasn't a media product, it wasn't seen as a magnet for consumer marketing dollars.

"It's never really been a struggling property," he said. "This company has done a wonderful job of monetizing the assets built on the largely consumer-facing membership base. It's become the hub for professionals' identity and a hub for recruiters."

'Facebook Of Job World'

LinkedIn likes to say that its mission is to create economic opportunities for the global workforce by giving them access to people, jobs, news, updates and insights that help them do a better job. To the consuming public, it's often called theFacebook ( FB ) of the job world.

"You go to Facebook to interact with friends," Sanderson said. "It's a social experience. LinkedIn is a professional experience: to network with people in your industry."

Competitors include various job sites but none have the same breadth and massive membership to leverage.

"Recruiters are there because the (400 million) members are there," Sanderson said.

"There is not another Internet property like LinkedIn. Facebook has ambitions to launch a professional network adjacent to its consumer network. It could be a threat but a lot of people thoughtAlphabet 's ( GOOGL ) Google would be a big threat to Facebook," he went on to say. "Most important is the network effect. The jobs are there. The people are there. That drives stickiness."

LinkedIn provides most of its services to members at no cost. It generates revenue from three business segments: talent solutions, which helps recruiters identify and hire talent; business-to-business marketing solutions targeted to advertisers; and premium subscriptions offering enhanced functionality.

Field Reps Drive Revenue

Field sales reps helped drive the firm's hiring revenue to $461 million, up 34% in the third quarter from a year ago. Hiring revenue is part of the company's core talent solutions division, which logged a 46% gain to $502 million, and accounted for 64% of total revenue. The remainder was derived from marketing products and premium subscriptions.

The gain in overall talent solutions marked the first year-over-year acceleration since the third quarter of 2010, noted analyst Brian Nowak of Morgan Stanley. He said it was due to benefits from the sales-force realignment, which helped limit customer churn and drive product upselling.

The sales-force realignment and subsequent shift towards smaller customers turned from a headwind to a tailwind in the third quarter, noted UBS analyst Eric Sheridan in a note to clients. Not only did lots of new customers sign on, revenue per customer rose 1.2% over the earlier year. In the second quarter, it had dipped 1.3%.

Raised Guidance

Management raised the firm's full-year outlook for revenue and adjusted earnings, or EBITDA. Its new forecast calls for revenue of $2.975 billion to $2.98 billion, up from last year's $2.2 billion and $35 million to $40 million above prior guidance. Most of the upside is seen from the third quarter and the rest from the fourth quarter.

Adjusted EBITDA for the year was raised by $75 million to $740 million, implying a fourth-quarter number around $210 million, well above analysts' views.

"Helping members get hired is one of the fastest growing areas of engagement on LinkedIn," Chief Executive Jeff Weiner said in prepared remarks in the third-quarter report, adding that it has more than 4 million active job listings vs. roughly 1 million a year ago.

"LinkedIn's largest revenue segment (talent solutions) may have a longer runway for growth than investors believe," wrote analyst Anthony DiClemente of Nomura in a report in early December.

He pointed to a refreshed recruiter product, increased penetration of small to midsize businesses and upselling of other products. All that should support at least 25% annual sales growth for the division's foreseeable future, he added.

Total third-quarter revenue rose 37% to $780 million. Analysts polled by Thomson Reuters expect full-year sales of nearly $3 billion, up 35% from last year. They see another 31% gain next year. Earnings are expected to rise 33% this year to $2.69 a share and 38% in 2016.

Cross-Selling

One product line that LinkedIn aims to cross-sell is an e-learning platform acquired as part of its $1.2 billion purchase of Lynda.com in May. Lynda.com provides a library of video learning courses taught by experts in their field to help people sharpen their career skills.

Lynda.com contributed $41.3 million in revenue in the third quarter, its first full quarter of contributions. It's part of LinkedIn's talent solutions unit.

"E-learning is a big opportunity for many companies and the future of education globally," Sanderson said.

Unique visitor members to LinkedIn grew 11% in the third quarter to 100 million a month, while member page views rose 33%. Weiner attributed the gains to the company's increased focus on what he termed quality engagements and less on email transactions.

Mobile continued to grow at double the rate of overall member activity and made up 55% of all traffic to LinkedIn in the third quarter.

LinkedIn's next-generation mobile app was launched last month. According to Weiner, it "does fewer things better and is faster, simpler and more personalized."

The company continues to invest in China, now the second-largest market for new sign-ups after the U.S. It has strategic ties-ins with several of the largest Chinese web platforms, such asTencent 's ( TCEHY ) WeChat and QQ Mail, as well as e-commerce siteAlibaba ( BABA ) and its online payments company Alipay.

A little under 40% of revenue was generated outside the U.S. in the third quarter.

"I think they are still in (their) early days," Sanderson said.

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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