Start Your Portfolio With This Social Media Star

Worldwide Invest Better Day 9/25/2012

As Worldwide Invest Better Day approaches, we here at The Motley Fool are profiling dozens of companies that might be worth investing in. Here's a closer look at LinkedIn (NYSE: LNKD  ) , the world's largest social network for business professionals.

History and overview
Founded in December 2002 by a group of five co-founders, including well-known investor and entrepreneur Reid Hoffman, LinkedIn is usually grouped together with Facebook (NYSE: FB  ) and Twitter when talking about the world's more popular social networks.

There's a good reason for this. LinkedIn uses the term "connections" to describe how users interrelate on the site. Those connections, and others connected to those connections, create a virtual professional network that can grow to be thousands strong. Such extraordinary reach may explain why some, including Forbes, have called the site an "invaluable social networking tool" for job seekers and career-switchers.

For its part, LinkedIn says members are on track to perform 5.3 billion professionally oriented searches in 2012, up from 4.2 billion a year ago. Meanwhile, the company's Hiring Solutions group, which caters to recruiters, has doubled revenue on a year-over-year basis in 13 consecutive quarters. By contrast, Monster Worldwide (NYSE: MWW  ) has suffered negative revenue growth in each of the last three quarters.

Today, LinkedIn's 175 million members can be found in more than 200 countries and territories. Roughly 62% of that group live and work outside the United States. The vats of data this active base of users creates has given rise to a variety of new products, including LinkedIn Today, a news site created out of what networked users share, and LinkedIn Groups, for growing networks using areas of common professional interest.

The business
Of all of LinkedIn's businesses, none is so interesting as the aforementioned Hiring Solutions. Here at The Motley Fool, we use it to find "passive candidates," prospective employees who are eminently qualified but not looking for work. To this day our in-house recruiters say LinkedIn is a top three source for new Foolish talent. We aren't alone:

Segment

2011

2010

2009

Hiring Solutions

$260,885

$101,884

$36,136

Marketing Solutions

$155,848

$79,309

$38,278

Premium Subscriptions

$105,456

$61,906

$45,713

Source: S&P Capital IQ. Dollar amounts in millions.

Hiring Solutions now accounts for more than half of revenue, but marketing solutions (i.e., ad sales) and premium subscriptions (i.e., additional services for job seekers and career-switchers), continue to grow fast despite a high unemployment rate here in the U.S. All signs point to LinkedIn as an indispensible data source for candidates and recruiters alike.

But don't take my word for it. Check the numbers for yourself -- revenue growth is accelerating as margins improve:

Metric

FY 2011

FY 2010

FY 2009

Revenue Growth

114.8%

102.4%

52.5%

Gross Margin

84.4%

81.6%

78.5%

Net Margin

2.3%

1.4%

(3.3%)

Cash / Debt

$577.5 / $0.0

$93.0 / $0.0

$90.0 / $0.0

Source: S&P Capital IQ. Dollar figures in millions.

Here are three other things you, as a potential investor, should take away from this data:

  1. Accelerating revenue growth suggests there's rising demand for LinkedIn's services.
  2. Demand, in turn, gives LinkedIn pricing power, which it appears to be growing: gross margin has improved by nearly 6 percentage points over two years.
  3. With plenty of cash and no debt, management has plenty of room to invest in for long-term growth.

Foolish takeaway
Think about how you invest your own resources. Do you buy what you need at a good price? Do you invest the excess in things that matter, whether for the benefit of yourself, your family, or a cause you care about? Are you careful not to pile up debts you can't pay off? Companies and management teams are subject to these very same tests. LinkedIn's team is delivering.

Care to learn more? There's plenty of source material freely available on the web:

Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team and the Motley Fool Supernova Odyssey I mission. He didn’t own shares in any of the companies mentioned in this article at the time of publication. Check out Tim's web home, portfolio holdings and Foolish writings, or connect with him on Google+ or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.

The Motley Fool owns shares of LinkedIn and Facebook. Motley Fool newsletter services have recommended buying shares of LinkedIn and Facebook. 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.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2027137, ~/Articles/ArticleHandler.aspx, 10/23/2014 4:18:13 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement