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Why LinkedIn Might Kill It Tomorrow

Last week was a tough one for social media stocks, to say the least. The market expected more of Facebook (Nasdaq: FB  ) than it was able to deliver, and its shares plummeted. Meanwhile, Zynga (Nasdaq: ZNGA  ) lowered its full-year outlook, and its stock got crushed. Zynga shares are now trading 70% below its IPO price of $10.

With LinkedIn (Nasdaq: LNKD  ) reporting tomorrow, investors understandably might be bracing themselves for another huge disappointment. I'm actually optimistic, however, and feel there are good reasons to expect a big quarter from the social networking site for professionals.

Selling like hotcakes
The primary reason I'm hopeful is that LinkedIn's Hiring Solutions business is on fire. Hiring Solutions enables recruiters to come on the site to find ideal candidates, and it's the company's largest and fastest growing business. In the first quarter of 2012, Hiring Solutions grew 121% to $103 million. This accounted for 54% of LinkedIn's revenue, and that percentage has been steadily climbing over the past few quarters. Everything I've read about the company in recent weeks suggests that growth here remains very strong. With analysts expecting revenue to come in at $215.2 million for the second quarter, another stellar performance from Hiring Solutions may allow LinkedIn to easily surpass that hurdle.

A related reason to be optimistic is that the company has been doubling down on its sales staff this year. Forbes recently reported that LinkedIn has doubled the number of sales employees in the past year, spending 33% of its revenue on sales and marketing. This compares, according to Forbes, with Oracle (Nasdaq: ORCL  ) and Microsoft (Nasdaq: MSFT  ) , which spend 20% of revenue on sales. Facebook spends 15%.

Clearly, LinkedIn knows there is a very receptive market for its products right now, and it's expanding to meet the opportunity. LinkedIn's CEO Jeff Weiner told Forbes that every time the company has expanded the sales team the payoff has been "off the charts." I believe this is further evidence that we'll see huge growth from Hiring Solutions.

European headwinds
Like many other companies that have reported earnings recently, LinkedIn could see some weakness from Europe. Roughly 21% of its members are from Europe, and 61% of its members overall are located outside of the United States. The company expressed concerns about Europe in their Q1 conference call, and obviously things there haven't gotten any better over the past few months.

All in all, I expect LinkedIn to exceed analyst earnings expectations of $0.16 per share. Sadly, I'm not so sure the company will be able to continue its streak of seven consecutive quarters in which revenues have doubled over the previous year. In order for that to happen this time, revenue will need to come in at $242 million. It would be a grand slam for investors, if that were to happen. My colleague David Meier and I own shares of LinkedIn in our real-money portfolio, so we're looking forward to the call tomorrow.

Our analysts here at The Motley Fool have been following the social networking space very closely. Our latest premium report is about Facebook. It will provide you everything you need to know (and more) about the most talked about company in the world. If you'd like to learn more about whether Facebook is a good opportunity, then grab your free report today.

John Reeves owns no shares of the companies mentioned. You can follow him on Twitter @TenBaggers.

The Motley Fool owns shares of Microsoft, Oracle, Facebook, and Linkedin. Motley Fool newsletter services have recommended buying shares of Microsoft, Linkedin, and Facebook. Motley Fool newsletter services have recommended creating a bull call spread position in Microsoft. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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