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Why LinkedIn Could Be A Superb Investment

May 10, 2014 | About:
vinaysingh

vinaysingh

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In the last few years, growth of social media has overwhelmed people across the globe to such an extent that everyone from big business houses to small scale investors is trying to reap some benefit by participating in the tide. It is extremely difficult for any player to just rush into the space and establish its business among the likes of Facebook and Twitter. However, LinkedIn (LNKD) is one such company that has astutely carved out a niche market for itself and created immense value for its shareholders.

A brilliant quarter

LinkedIn recently saw an increase of 37% year-over-year in cumulative membership to 238 million; the first ever increase since its IPO in 2011. As a result of greater engagement, the company raked in revenue of $364 million, which translated into non-GAAP EPS of $0.38. The strong performance is also to be attributed to launch of several new products in the quarter around Marketing and Talent solutions. LinkedIn has shown considerable mettle in the social media space that is visible in a massive gain of 140% in its share price over the last 12 months.

The company knows the most important part -- Good products

The employment crisis prevailing in countries across Asia and Europe benefited LinkedIn as more and more people got on-board during the quarter to look out for opportunities. As reported, approximately 65% of its members are outside of the U.S. Besides this, the launch of relevant and innovative products throughout the quarter secured greater customer engagement.

The company released various products with the sole motive of making things convenient for its users. May it be the LinkedIn Contacts, which makes it easier for users to track meaningful conversations or empowering members to add rich media content to their profiles, LinkedIn has adopted the right strategy to survive in this industry -- consistent innovation.

As per analysts, LinkedIn’s PEG ratio on a five year forecast is around 2.6, which makes it a reasonable buy as compared to its peers. I say this is a justified valuation keeping in mind that the company is still very young and has a plethora of growth opportunities ahead. Also, the way it is investing money and efforts in innovation, it is sure to pay off handsomely in near future. The company also saw a commendable increase of 68% in revenue from premium subscriptions, which testifies the excellent quality of its offerings.

Facebook is back in the game.

LinkedIn’s shares rose quite a bit after Facebook (FB) declared stronger than expected results. Its recently launched feature Graph Search has the potential to become a dangerous threat to LinkedIn as users are using it vigorously to establish professional connections and recruiters are using it to find the best candidates.

It is evident that Facebook is trying every measure possible in order to engage users on the website. Moving ahead, the company will be banking heavily on these new products to get more people on-board. I believe Facebook’s share price will successfully sustain the momentum because of the stupendous growth in mobile ad revenue and frequent launch of new products/features.

This monster is in some trouble!

While LinkedIn’s business has grown in various directions, it still remains a platform for connecting potential hires and eligible candidates at the core. One direct competitor to the company in this space is Monster Worldwide (MWW) that operates the famous jobs website monster.com. Monster had a bit of a rough time as net income dropped to $3.4 million from $4.8 million (last year same period) due to a fall in revenue.

As management highlighted, the global economy has still not recovered completely and hence, the company is not seeing any major leaps in quarterly results. Also, there has been no change in guidance for Q3 as EPS is expected to be in the range of $0.06 to $0.10 per share. It is easy enough to see that things are moving quite slowly at Monster and as a result, investors are not placing any big bets on the stock.

Invest in LinkedIn’s growth

Getting straight to the point, I would happily invest in LinkedIn at this point, not because of its Q2 results but for the growth opportunities that lie ahead. It is difficult to survive in an industry with such fierce competition, but LinkedIn has done it in a magnificent way. The reason behind this success lies in its well-placed strategies.

An explosive growth in the next few years will come from mobile and the company has already started working on it. In April, it launched a new iOS and Android app, which saw a 40% lift in mobile engagement than the previous app. I am happy to see that LinkedIn has realized the potential of mobile and started working on it to revamp the experience of its users.

One of the things that have made Google so huge is valuable and mindful acquisitions. Well, LinkedIn has cleverly followed a similar path by adding new businesses to its portfolio with the overall objective of satisfying users. Last year, it acquired the content sharing platform Slideshare, a move that is going to generate huge returns very soon. Thus, you can imagine the massive potential of Slideshare, once it gets into mainstream marketing solutions.

To sum it all, Linkedin is a superb investment for its products, opportunities, and an efficient management team.


Rating: 3.0/5 (1 vote)

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Comments

Dr. Paul Price
Dr. Paul Price premium member - 2 months ago

LinkedIn has traded as high as $257.56 and as low as $136.02 during the last year.

What is LNKD worth? You never gave your opinion on that.

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