In the last ten years, social media has exhibited a phenomenal growth starting from the good old days of Orkut and Yahoo Chat to having a social app/site for each aspect of human life. LinkedIn (NYSE:LNKD) is a perfect example of a company that has carved out a niche market for itself by appealing to professional aspect of human life and as such distinguished itself from other social media giants like Facebook and Twitter. Of late however, it has been witnessing a slowdown in revenues and income owing to various factors like core business model, competition, market scenario etc. Currently trading at an exorbitant forward multiple of around 69, let us see if LinkedIn presents a buying opportunity.
Is the Street affording a correction?
Since September when the stock was trading in $250 range, it has fallen around 37% to its current price level. Clearly, one of the observations that emerges is that the market is in the effecting a correction in LinkedIn’s price, a process that could continue if the growth rates remain stagnant. Over the past few years, LinkedIn has tried to fuel its growth via acquisitions, a generic strategy adopted by major tech players. A couple of notable acquisitions made by the company include Slideshare and Pulse both of which align well to LinkedIn’s big picture.
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- LNKD 15-Year Financial Data
- The intrinsic value of LNKD
- Peter Lynch Chart of LNKD
The right pulse
LinkedIn acquired Pulse last year for an estimated $90 million and is now integrating the business to deliver a successful publishing platform that will help improve user engagement. LinkedIn Publishing will let users publish media rich content that can also be shared with other users. The service is being rolled out to all members and will also become a strong tool for advertisers and gives a strong and sustainable media platform to members who intend to propagate their ideas among the business circles. As more and more employers are using LinkedIn to look for potential candidates, a platform like this will be a great source for members to present themselves using rich media content.
Besides using big ticket acquisitions, LinkedIn is also finding ways to fuel its growth using technological innovations. Since, the core idea supporting LinkedIn revolves around career, jobs etc. the company has made the right move by introducing its new job search app. This app is LinkedIn's first strategic move to expand its user base via a standalone service. In the last few years, LinkedIn has tried to increase added value for its users through adding features and content that address the needs of the professional world. The new job search app has an excellent chance of increasing LinkedIn's user base as it addresses the most important piece for every professional - the career path.
There is no doubt about the fact that mobile is going to be the touchstone of technology in the near future as more and more people across the globe jump on board the ship called smart devices. As such, the launch of a new standalone iOS app that allows job seekers to apply for jobs using their phones and without the apprehension of it being noticed by the entire network will surely engage and multiply users. In the world of social media, users are indispensable and it is impressive to see LinkedIn striving to increase its user base.
In my opinion, LinkedIn is a strong company fundamentally and the way it has created and championed a particular segment of social media is praiseworthy. The current efforts being invested by the company with the intent of engaging users and attract advertisers is also commendable. However, the fact that the company has been struggling to deliver healthy numbers cannot be ignored. LinkedIn’s topline growth is stagnating and the rate at which EPS is growing is not sufficient to justify its valuation. As per Alpha Omega Mathematica, the company is currently trading at a forward multiple of around 69 as compared to industry average of around 41.
Coupled with the reasonable insider selling that the company stock has seen, it seems to be a daisy proposition to invest in LinkedIn for now. Without a doubt, LinkedIn has a great business model with various revenue streams like membership charges, advertising and talent acquisition solutions but it will be prudent to watch the company from side-lines till it delivers a set of sustainable numbers.