LinkedIn – Added to the Bf Gf Portfolio

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After mulling over the decision for a long time, Linkedin (LNKD) has finally been added into the Bf Gf Portfolio at a price of $198.83 on 12/05/15.  But before I start, I would like to say that I am extremely biased towards LNKD.  It has all the entrepreneurial characteristics of a dynamic company that has great vision, culture, and execution.  However, as the market has high expectations for this stock, it’s valuation is not cheap at all.

LNKD Key Statistics   LinkedIn Corporation Class A Co Stock   Yahoo  Singapore Finance

 

Currently, Market Cap 25.65B and PS of 10.28; no earnings yet.  The valuation is much higher when I was watching it, and a recent fall by almost 20%, (due to missed expectations), gives me more courage to make a tiny micro-bet on LNKD.  Only a micro-bet because even after the fall, it is still expensive.  However, I am in love with this stock because it is a gamechanger and its dynamic nature leaves it plenty of room to pivot, monetise and grow additional revenue streams.

 

Vision

LNKD’s vision is to connect the world’s professionals to make them more productive and successful. When you join LinkedIn, you get access to people, jobs, news, updates, and insights that help you be great at what you do.

 

I particularly like this vision because I myself rely a lot on networking to collaborate and build my business.  LNKD has benefited me greatly by getting me in touch with contacts that I can do business with.  People are also able to reach out to me and after introductions, we proceed to share useful info or strategies of the industry that a simple Google search is unable to produce.  LNKD groups are also a great place to network and gauge feedback before launching a product.  I have made some powerful allies in the business world… all thanks to LNKD.

 

I have not tried applying for jobs on LNKD yet but a quick check on my network and responses affirm that some people have managed to get internships or jobs successfully through LNKD.  A hiring manager also told me he finds his candidates on LNKD.  With LNKD, he is able to sift out proper candidates at a far more efficient level than relying on your usual job search websites.

 

LNKD has recently acquired Lynda.com for $1.5B.  In case you don’t know, Lynda.com is one of the more successful and well-known players in the online education industry.  Lynda offers more than 100k learning videos with full of useful content that has been built up on their website over the years. By acquiring Lynda.com, LNKD  can now help professionals upgrade their skills by directing them to Lynda.com or even suggest related skills in their industry for them to learn.

 

Needless to say, the Lynda.com acquisition further perked my interest in LNKD as I am a BIG BULL on Online Education.  I am also a firm believer of networking online; ( I have seen the opportunities and experienced the intangible and monetary benefits of it).  Furthermore, LNKD has also introduced Sales Navigator, a service that coughs up leads for sales people to act upon.  I also happen to be a social-seller and a big believer ( who once again, have seen the opportunities and experienced the intangible and monetary benefits of social selling.)  I am also a huge admirer  worshipper of Reid Hoffman (Founder and major shareholder) of LNKD.

 

The Strategy

( Taken from CEO Jeff Weiner’s statement from LNKD 2014 Annual Report)

• Mobile. Members can now increasingly build their professional networks, find relevant information, and identify opportunities across our multi-app portfolio, which now includes our flagship LinkedIn app, Pulse, Job Search, and SlideShare. With respect to our customers, we improved the Recruiter app for talent acquisition professionals, and we released a new Sales Navigator app for outbound sales customers. As we exited the year, mobile accounted for 49 percent of unique visiting members to LinkedIn and is growing at double the rate of overall member activity.

• Global expansion. In Q4, more than 75 percent of new members came to LinkedIn from outside the US. China, with roughly one in five of the world’s professionals, emerged as a focus in 2014. In February, we launched LinkedIn in Simplified Chinese, and Chinese membership has doubled from four million English-language members pre-launch to now more than eight million members.

• Developing our content strategy. LinkedIn increasingly facilitates how members stay informed through news and knowledge. In February, we introduced the ability to publish long-form content, allowing members to establish their experience by sharing their professionally relevant insights. By year’s end, we made long-form posting available to all 230 million English-language members, and will continue to roll out publishing functionality on a global basis. We have now surpassed more than 1 million long-form posts on the platform. In addition, our roster of professional Influencers continues to deliver compelling content to members. Also, rich media continues to grow on our platform. SlideShare now hosts more than 17 million presentations and videos, demonstrating strong progress toward our goal of making it the largest repository of professional knowledge on the Internet.

• Scale and relevance of jobs. Early in the year, we acquired Bright, and shortly after, we began adding open job listings targeted to active job seekers. There are now more than three million jobs available on LinkedIn, a greater-than 10x increase from a year ago. Part of our long-term goal is to have every available job in the world on LinkedIn

 

Basically, LNKD works like how Facebook does.  It needs to have users constantly using LNKD platform in order for a vibrant community to sustain the business.  One way to do so is by allowing professionals to access content and information beneficial to their job or business.  LNKD attracts traffic through job-posting and allowing users to follow companies.  This also helps the recruiters to match the user to a job later on.   Also by allowing long-form posting, LNKD is leveraging the power of crowd-sourcing to constantly provide useful content that can draw visitors or leads to the LNKD platform.

 

The Business

Currently there are 3 main ways that LNKD monetises its platform

( Taken from CEO Jeff Weiner’s statement from LNKD 2014 Annual Report)

• For Talent Solutions, 2014 represented a year of investment in both our flagship Recruiter product and growing our sales team. At our annual Talent Connect conference, we unveiled powerful new search capabilities for Recruiter that simplify the experience for hiring managers, as well as tools that help recruiters find the best fit for their particular companies. More broadly, our effort to add millions of job listings to the platform furthers our objective to power the majority of the world’s hires.

• For Marketing Solutions, 2014 marked progress against two key initiatives—the transition to a more scalable content marketing platform, and the creation of a full-funnel end-to-end product portfolio. Sponsored Updates continues to show strong momentum, and now accounts for approximately one-third of total Marketing Solutions revenue. In addition, the acquisition of Bizo led to a reimagined product suite that for the first time allows customers to build their brands, nurture prospects, and drive high quality leads. We believe this will make LinkedIn the most effective platform for marketers to engage with professionals.

• Within Premium Subscriptions, 2014 saw the simplification of our individual member-focused products, and the successful launch of the new Sales Navigator flagship product. We believe that behind the social selling value proposition, Sales Solutions will scale into our third, verticallyfocused product line following Talent Solutions and Marketing Solutions.

“For the full year 2014, revenue was $2.2 billion, a 45% year-over-year increase, and we delivered adjusted EBITDA of $592 million, a 27% margin.1 Talent Solutions grew 46% to $1.3 billion; Marketing Solutions was up 46% to $455 million; and Premium Subscriptions increased 42% to $437 million.”

 

Latest Financials

First Quarter Operating Summary April 30, 2015

  • Talent Solutions: Revenue from Talent Solutions products totaled $396 million, an increase of 36% compared to the first quarter of 2014. Talent Solutions revenue represented 62% of total revenue in the first quarter of 2015 and 2014.
  • Marketing Solutions: Revenue from Marketing Solutions products totaled $119 million, an increase of 38% compared to the first quarter of 2014. Marketing Solutions revenue represented 19% of total revenue in the first quarter of 2015, compared to 18% of total revenue in the first quarter of 2014.
  • Premium Subscriptions: Revenue from Premium Subscriptions products totaled $122 million, an increase of 28% compared to the first quarter of 2014. Premium Subscriptions represented 19% of total revenue in the first quarter of 2015, compared to 20% of total revenue in the fourth quarter of 2014.

Revenue from the U.S. totaled $389 million, and represented 61% of total revenue in the first quarter of 2015. Revenue from international markets totaled $248 million, and represented 39% of total revenue in the first quarter of 2015.

Revenue from the field sales channel totaled $393 million, and represented 62% of total revenue in the first quarter of 2015. Revenue from the online channel totaled $244 million, and represented 38% of total revenue in the first quarter of 2015.

 

LNKD has also touched on their market opportunity here.

In summary, management has confidently claimed that they have expanded the market opportunity to $115B from $50B, 4 years ago.  This is done by making use of LNKD database of users to penetrate markets with useful services and solutions for professionals.  “This total addressable market is composed of $27 billion for Talent Solutions, $45 billion for Marketing Solutions, $15 billion for Sales Solutions, and $30 billion in the Learning & Development market.”

 

One interesting revenue stream to take note of from the latest quarter transcript from the CFO:

“Sales Solutions outpaced our expectations in the first quarter, growing at a faster pace than general subscriptions. Throughout the year, we will continue to iterate on our flagship product and expand the salesforce to pursue our $15 billion market opportunity. In the first quarter, sales solutions represented just north of 30 percent of premium subs revenue. Important to note, the pace of revenue growth trails underlying business growth given the ratable revenue recognition dynamic. In the first quarter, field sales executed well as our teams continued to educate the market about the social selling value proposition. The customer base has more than doubled versus last year, expanding faster than our salesforce; and spending per customer has increased by approximately 30 percent.”

 

Some thoughts on LNKD

LNKD undeniably has a good platform that is able to attract more users and become more relevant for job hunters.  It is still in the beginning stages of reaching its full potential.  What I love so much about this company as demonstrated by the introduction of Sales Solutions and the acquisition of Lynda.com is it’s ability to keep trying to expand and create revenue streams by leveraging on its user database to enter new markets.

If LNKD is able to keep improving their current revenue streams, which they are doing pretty well, and keep creating new ones, (as seen by the introduction of Sales Solutions), it’s potential and market opportunity will just keep getting bigger… and bigger… and bigger.

Valuation may seem very steep at the moment and LNKD may need some time to grow to the market’s expectations.  But then again, I have a feeling that the market will keep matching LNKD’s share price to it’s market opportunity, which will keep increasing if they continue coming up with new ways to penetrate new markets or disrupt existing ones.  That being said, proper execution and management will be watched carefully to see if the company can keep up to its promises; and for the past few years, the LNKD team has been doing a remarkable job.

With such a long runway for endless growth and opportunities, I am willing to pay a premium price to make it a small part of my portfolio as my intended holding period for this stock is 15-20 years.  (Will the current valuation I buy at now matter strongly in the future? Let’s check back on this post 10 years later.)  The small-micro bet placed on this company also reflects the current valuation and execution risks of the company, and acts like a tracer bullet:  I will be waiting for corrections to beat the price down further before I fire more bullets into this stock.  The high market expectations will generate volatility, and volatility may offer me better entry points.

I strongly believe that LNKD has grown past the stage of being just a ‘fad’ or a ‘social media’ company.  It is more than that.  It offers a peek into the future and the current level of exemplary execution gives me a strong gut feeling for more exciting things to come.

 

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What do you think of LinkedIn?  Let us know in the comments below!

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1 Comment

  1. pramod baviskar

    linkedin almost on fire!! best performing stock for traders !!

    Reply

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