Is LinkedIn Really Worth More Than $100?

Professional networking site LinkedIn (NYSE: LNKD  ) has often been referred to as the adult version of Facebook (Nasdaq: FB  ) , but unlike social networking, LinkedIn isn't yet a "fun" place to hang out. Sure, one's for professionals, the other is social, so there will always be that dichotomy that keeps LinkedIn from allowing its 175 million members to engage in the juvenilia that passes for content over at Facebook, but that means people are less likely to spend more time on the site. So it's leaving a bit of opportunity on the table.

In the U.S., where LinkedIn has the greatest penetration, the market analysts at comScore say users spend on average 20.6 minutes a month on the site compared with 402.9 minutes at Facebook. Moreover, they make an average of just 5.4 visits per month to the site compared to 35.6 visits on the social networking site. Obviously there's a lot more engagement going on at Facebook than at the grown-ups' networking site.

Of course, it can be argued that the engagement that does occur is of a higher quality than what's happening at its peer, but the large disparity between the two sites highlights ways in which LinkedIn can still grow and further monetize its site.

Can LinkedIn avoid turning in to Facebook, yet increase engagement? Let's take a closer look.

LinkedIn snapshot

Market Cap

$11.4 billion

Revenue (TTM)

$724 million

1-Year Stock Return

23.9%

Return on Investment

2.1%

Estimated 5-Year EPS Growth

116.1%

Dividend and Yield

N/A

Recent Price

$107.55

CAPS Rating

*

Source: FinViz.com. N/A = not applicable; LinkedIn doesn't pay a dividend. TTM = trailing 12 months.

High-falutin' honeys
It seems LinkedIn is aware that it needs to become more "sticky," because it just tweaked its profile page to move users in that direction. There's more customized content, the ability to "endorse" someone's qualifications, and Facebook-style notifications.

He who hesitates is lost
Those and other tweaks over the past two-plus years allowed it to grow from 12 million unique users the to 135 million it sees today. That may be a big improvement, but it's still not getting its members to visit more frequently or do more once they're there.

That could be because its competition has people using the more-engaging Facebook platform. Monster Worldwide (NYSE: MWW  ) offers a Facebook app called BeKnown, as does Gannett's (NYSE: GCI  ) CareerBuilder. BranchOut said their app has 30 million users and counting. Having waited so long and kept its site narrowly focused, LinkedIn may have missed opportunities to grow its base more and generate greater revenue.

Fish in a barrel
Right now half of LinkedIn's revenue comes from its power users, the professional organizations and recruiters who paid $121.6 million to access its hiring solutions technology. That more than doubled from the year-ago period and represents 53% of its quarterly revenues.

My Foolish colleague Rick Munarriz sees its approach as effective, as a talent-rich pool of individuals gather in one place where paying customers looking for the best qualified people can pick them off one by one. In contrast, Facebook, Twitter, and MeetMe (NYSEMKT: MEET  ) are still casting about for the right formula, relying primarily on advertising dollars for income, a somewhat riskier, less secure means of money-making.

Others might argue having to create the content for others to profit from might be suboptimal, though if by creating such content you land a job, it might pay dividends in the end. With its low-touch clientele however, LinkedIn not only needs to add more functionality to bring in and keep its users, it needs to do so more quickly because of the opportunities rivals are finding elsewhere, particularly on Facebook.

Price is what you pay
For that reason, I have a tough time valuing LinkedIn at seven times Facebook's trailing earnings or even two and a half times its estimates. As Facebook's earnings yesterday showed, it's on a learning curve for monetizing its huge user base and it's learning quickly. That gives it an even greater range of possibilities than LinkedIn has.

I previously rated LinkedIn to underperform the market indexes on Motley Fool CAPS, the 180,000-member investor community where informed opinion is translated into stock ratings of one to five stars. The professional networking site's lowly one-star rating suggests quite a few are yet sold on its nosebleed valuations, either.

By making either a bullish or bearish CAPScall, I hold myself accountable for the opinions I express here. Tell me in the comments section below whether you agree LinkedIn north of $100 a share is a bit much to pay for the lack of engagement it currently offers.

A sky-high opportunity
After the world's most hyped IPO turned out to be a dunce, most investors probably don't even want to think about shares of Facebook. But there are things every investor needs to know about this company. We've outlined them in our newest premium research report. There's a lot more to Facebook than meets the eye, so read up on whether there is anything to "like" about it today, and we'll tell you whether we think Facebook deserves a place in your portfolio. Access your report by clicking here.

Rich Duprey has no positions in the stocks mentioned above. The Motley Fool owns shares of Facebook and LinkedIn and has the following options: long JAN 2014 $20.00 calls on Facebook. Motley Fool newsletter services recommend Facebook and LinkedIn. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (3) | Recommend This Article (3)

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.

  • Report this Comment On October 25, 2012, at 6:05 PM, kthor wrote:

    a lot of Linkin members are actually spammers ...

  • Report this Comment On October 25, 2012, at 7:03 PM, scott1020 wrote:

    I think that north of $100 is fine assuming LNKD eventually takes market share from staffing agencies. The risk is high to get in now, but I think it's worth it.

    If they fail to do this, and stay within reaching distance of Internet/mobile platforms, then under $100. LNKD will definitely need to adjust over the next 5 years, if they execute, the sky is the limit.

  • Report this Comment On October 25, 2012, at 8:18 PM, goodresevoir wrote:

    Average use of 20 minutes a month sounds about right. Maybe even a bit high. And what are those minutes? Following a link from an email account, accepting invitations just to be nice and then leaving again. And when conducting those basic processes, users do not encounter any advertisements or prompts for pay-services. So, there is no revenue potential for the overwhelming majority of users.

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