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Riddhi Kharkia
Riddhi Kharkia
Articles (151) 

At The Current Price Level, LinkedIn Represents A Valuable Buy!

July 07, 2014 | About:

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 (NASDAQ:FB) and Twitter (NYSE:TWTR). 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 robust quarter

For the first quarter of 2014, LinkedIn saw an increase of 36% y-o-y in cumulative membership to 296 million. As a result of greater engagement, the company raked in revenue of $473 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.

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.

Over the last twelve months, the stock has seen a steady fall on the exchange and is now trading under $180 price tag. In my opinion, this price level provides an attractive buying point 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 a giant in the game.

I have always advocated the mighty strength of Facebook in the social media space and with the recent Forrester report favouring Facebook as the favourite among US teens, its dominance is not going anytime soon. The company ranks second after Google (NASDAQ:GOOG) (NASDAQ:GOOGL) in the online ads industry and has grown its revenue at a phenomenal pace.

Currently, Facebook has increased its monthly active users to 1.28 billion besides the users on Instagram (close to 220 million monthly active users). Additionally, the company is pursuing various advertising mechanisms including better targeting, mobile ads etc. to woo advertisers.

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.

Invest in LinkedIn’s growth

Getting straight to the point, I would happily invest in LinkedIn at this point, not because of its Q1 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. Slideshare page views were up more than a 100% year over year in Q2, 2013. Thus, you can imagine the massive potential of Slideshare, once it gets into mainstream marketing solutions.

About the author:

Riddhi Kharkia
A practicing Chartered Accountant based out of India. I have keen interest in analyzing tech stocks that are driven by value.

Rating: 1.0/5 (1 vote)



Chipkent premium member - 3 years ago

Seriously? The quality of articles on GuruFocus has dropped as the market tops. Hopefully the bear market will remove this noise from the site.

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