Should Facebook Buy LinkedIn or Be LinkedIn?

Well done, LinkedIn (NYSE: LNKD  ) . The career-minded social-networking website operator soared on Friday after posting blowout quarterly results. Revenue soared 81%. Adjusted earnings more than tripled.

You're hired. When can you start?

However, if we're to believe some people, LinkedIn won't be on the market for long. CNBC's Jim Cramer, for one, argues that Facebook (NASDAQ: FB  ) should buy LinkedIn, and a few analysts apparently agree with him.

Not me. Why should Facebook overpay for LinkedIn when it can simply be the next LinkedIn? The notion isn't as far-fetched as it may seem.

Graph Search is only the beginning
The problem with most Web 2.0 models that rely on user-generated content and the breadth of that content is that an even bigger website could pass them by.

Yelp (NYSE: YELP  ) is attracting 86 million unique visitors a month? Great. Facebook has more a billion active members. If it ever wanted to take on Yelp's library of 36 million reviews, all it would need to do is open venue reviews as an option and hope that just four out of every hundred members would kick in with a single critique apiece.

LinkedIn has just surpassed 200 million users? Great. Facebook has five times as many users -- and most Facebook members frequent the site on a regular basis.

If the power of Facebook's reach doesn't scare any company -- LinkedIn included -- last month's introduction of Graph Search should be the equivalent of having the creepy little girl from The Ring drag her way into CEO Jeff Weiner's living room. Graph Search allows users to scour their friends -- and, perhaps even more importantly, their friends of friends -- for member-submitted data.

This isn't the iPhone's Siri, which has proved to be more novelty than practical. Graph Search is a useful game changer. Let's say that you're single, and you're looking. You can search through the list of your friends of friends for folks who aren't in a relationship and share an interest of yours. It could be religion, politics, profession, or even just favorite cuisine. Asking the mutual friend for a connection seems like an easier path than online dating.

Now let's target LinkedIn. How can Graph Search benefit someone looking for a job? Well, searching through friends and friends of friends for a certain company that you're applying for is a good start. Making a connection with someone who works there or used to work there can be an invaluable source of information, if not a foot in the door. Using Graph Search to contact friends of friends in your field of work can open up opportunities.

Hire calling
LinkedIn is far more than a hub for those looking for work, so it's not as if Facebook could just initiate a career-oriented layer to its site for those who need it -- not to mention that LinkedIn's success has come at the expense of previous Web-savvy leaders. Its stock soared Friday on good news, while Monster Worldwide (NYSE: MWW  ) saw its stock crash on Thursday on bad news.

Revenue from continuing operations slipped 10% at the parent company of Monster.com. Remember when Monster and its eventually acquired HotJobs.com were the places to go find work before LinkedIn made the process more seamless and ongoing? LinkedIn was the disruptor, but disruptors can be disrupted.

Calling in sick
Let's say Facebook doesn't think it can take on LinkedIn. Let's say the easier path would be to simply gobble it up. Where's the price point where LinkedIn accepts and the market doesn't pummel Facebook for overpaying?

It's a trick question. That price point doesn't exist.

LinkedIn hit a fresh all-time high on Friday. It's not going to sell itself for anything less than a fat premium. If LinkedIn is a $16 billion company today trading at more than 100 times this year's projected profitability, just imagine how much any buyer would have to pay.

Google (NASDAQ: GOOGL  ) is perhaps the only company that would even consider a play for LinkedIn. It has tried to take on Facebook with Google+, but it could grab the most lucrative slice of the market by targeting white-collared LinkedIn users. LinkedIn wouldn't break the bank.

It's still hard to envision a buyout here.

Facebook is no dummy. If it wanted to buy LinkedIn, doing so would be cheaper if the social-networking king could slow LinkedIn down first. Make investors believe that LinkedIn is vulnerable. Roll out what some would perceive to be a LinkedIn killer. It is then -- and only then -- that a buyout should be entertained at an opportunistic price point.

Who knows? If Facebook's aim were good enough, it may not even have to crack open its checkbook.

 

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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 February 11, 2013, at 1:48 AM, Beenthereseeit wrote:

    One error above referring to Facebook taking on Yelp: you mention that "all it would need to do is open venue reviews as an option"

    Facebook already has venue reviews. But nobody uses them.

  • Report this Comment On April 18, 2013, at 2:22 PM, KirstenSmith wrote:

    I think Facebook is headed in the direction of giving people the power to share to make the world more open and connected. Mark Zuckerberg has said that the world’s information “...should resemble the social graph--a network built from the bottom up or peer-to-peer”. It seems that Facebook wants to give people control over the content. Zuckerberg seems to also want to improve how people connect to businesses and the economy. A LinkedIn purchase may not be so farfetched; however, Facebook does not want to be known as a career site but as a way for people to connect to improve how information is shared. Recently, our CEO wrote an article on Graph Search and how, despite the fact that Facebook is not becoming a direct competitor to LinkedIn, recruiters can still leverage the data available to better connect with candidates. You can check it out here:

    http://onforb.es/Z6liwE

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