2 Charts Prove LinkedIn Is a Better Buy Than Facebook

LinkedIn (NYSE: LNKD  ) and Facebook (NASDAQ: FB  ) operate very differently, but they share one undeniably common characteristic: Both businesses will need to further monetize their members to grow into their valuations. On that note, two charts go a long way in helping us compare these social networks' valuations on a per-member basis.


Source: Data retrieved from Q2 2013 filings for each company. Facebook and LinkedIn both have different methods of measuring members. Facebook highlights both monthly active users and daily active users. Monthly active users was used in this chart for a more accurate comparison than daily active users would yield.

Facebook trades at a higher premium per member. Not a big surprise, right? Facebook's members are more far more active; they deserve a higher premium.

It's impossible to know exactly how much more active Facebook's members are than LinkedIn's, but Facebook certainly has a drastic lead.

This becomes clear when you look at the difference in the way each company measures its members. Facebook counts only members that are active on a monthly basis, referring to them as monthly active users. LinkedIn, on the other hand, accounts for total registered members -- even if they aren't active on a monthly basis.

But even though LinkedIn's members may not be nearly as active on the website, it has monetized them far better. And monetization, of course, is the name of the game at the end of the day.


Source: Data retrieved from Q2 2013 filings for each company. Facebook and LinkedIn both have different methods of measuring members. Facebook highlights both monthly active users and daily active users. Monthly active users was used in this chart for a more accurate comparison than daily active users would yield.

LinkedIn earns exactly as much as Facebook per member, even though LinkedIn's members are not nearly as active. To further define LinkedIn's definition of members, let's go straight to the company's 2012 annual report. Under its risk factors section, LinkedIn advises investors: "a substantial majority of our members do not visit our website on a monthly basis, and a substantial majority of our page views are generated by a minority of our members." Still, LinkedIn earns as much per member as Facebook.

Now add this into the picture: 699 million of Facebook's 1.155 billion monthly active users use the platform on a daily basis. That's a stark difference from LinkedIn's comparatively inactive user base.

Certainly if you were to find LinkedIn's revenue per hour of member usage, LinkedIn would post a number meteorically higher than Facebook.

I'm getting dizzy
In other words, LinkedIn's business model is far better at monetizing members than Facebook, yet Facebook trades at a significantly higher premium per member.

What happens if LinkedIn finds a way to persuade the majority of its members to use its service (as opposed to a minority today) on a monthly basis in the future?

Even more, what happens when LinkedIn nears the 300,000 businesses that CEO Jeff Weiner thinks it can persuade to pay LinkedIn for recruiting solutions? Today, the company is serving only about 20,000 businesses. Meanwhile, its recruiting solutions business is its largest and fastest-growing (69% revenue growth from the year-ago quarter) segment, making Weiner's vision seem realistic.

Something doesn't seem right here. If I'm already bullish on Facebook over the long haul, then this comparison has made me dinosaurish on LinkedIn.

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  • Report this Comment On August 03, 2013, at 4:44 PM, Shiroto wrote:

    But Facebook's ability to engage users on an active basis is itself a very strong factor in its favor, which Linked In will have tremendous difficulty in matching. As Facebook's monetization efforts are only beginning, it strikes me as holding far greater promise for future earning's growth than Linked In.

  • Report this Comment On August 03, 2013, at 5:48 PM, TMFDanielSparks wrote:

    @shiroto

    Good point. But Facebook's daily active users as a percentage of monthly active users (engagement rate) is growing slower today than in the past. I'm afraid that Facebook's members can't use the platform much more often than they already are. 699 million of the monthly active users already use the service on a daily basis.

    Your right, the fact that they do use the platform so often could be a reason for a premium... But the fact that LinkedIn members use the service far less often and despite this fact the company gets far more revenue per member is an even greater reason for a premium.... Yet Facebook already trades at a significantly larger premium per member thank LinkedIn.

    I think if either company had significant room for engagement growth, it would be linkedin, since members aren't using the service nearly as much today.

    But I like Facebook too... But I think I like LinkedIn a but more.

    Still, very active users is certainly a reason for a significant premium.... So, great point. Something to ponder.

  • Report this Comment On August 03, 2013, at 5:57 PM, TMFDanielSparks wrote:

    Oops. Bit* more ;)

  • Report this Comment On August 03, 2013, at 6:08 PM, RTurner70 wrote:

    I am soured as a FB *returning* member. I quitted it for a while because I was turned off by all the games, advertisings. Its long reaching *security arm* to control members its a little too much to stomach. I get complaints from my internet friends too about how they are limited in their activities and garnering friendship and information for mutual and democratic benefits. The way it is being run encourage silly paranoia at times, making the atmosphere unpleasant and annoying. LinkedIn is professional, respectful, not as overactive with security but not as fun as FB. Google (Google+) is calmer in more proactive ways without cluttering the pages. I have a feeling that LinkedIn & Google will eventually became more user-friendly while FB faded out like MySpace in my history book.

  • Report this Comment On August 04, 2013, at 6:50 PM, expoiltthespread wrote:

    a little late to the party? LNKD is selling at over 110 times its 2014 earnings estimates, while FB sells at less than 38 times its estimates. This should be a paired trade, shorting LNKD and going long FB. LNKD is a bubble waiting to pop.....

  • Report this Comment On August 08, 2013, at 5:40 PM, Chontichajim wrote:

    Member activity does not matter much on LNKD since most people are on it because they need to be for prospective and current employment not for the enjoyment of it. Even after retiring I need LNKD for some volunteer work though I am not active. FB is a social choice. Any monetization of LNKD will be from the employer user end not the participants. It is therefore impossible to compare these two based on user activity. LNKD is a far better business, but probably can't grow fast enough to justify such a lofty PE.

  • Report this Comment On August 08, 2013, at 5:46 PM, nicegirl10 wrote:

    Linkedin.com works substantially differently from Facebook. Linkedin.com has free members (individuals) and paying members (organizations.) The paying members have monthly subscriptions that allow them to do more. There are also some ads on linkedin.com but very few compared to FB. A large portion of linkedin revenue is the subscription members.

    The free members login from time to time to ask or answer questions in the groups they belong to; to respond to messages they received from paying members (recruiters); or to update their resumes.

    The paying members login frequently to post jobs, update and monitor their saved searches, search for individuals to fill existing jobs, contact those individuals, etc. Or if the paying member is a law firm, they search for individuals recently separated from companies they are getting ready to sue, and contact those individuals to find out if they can depose them as witnesses.

    Linkedin doesn't really care how often most of their members login or how much they do while they are logged in.

    As long as linkedin.com can continue to put recruiters and potential employees together successfully, the company is golden. And currently linkedin.com is the premier way for professional people to find a job.

  • Report this Comment On August 08, 2013, at 6:16 PM, PrivInvest wrote:

    I like both, no need to compare one against the other. One's success does not mean the other's failure. Also, I agrees, LinkedIn has a lofty valuation but I do not wish to anchor myself on it's numbers but rather on it's prospects. And, somehow, FB's CEO seems really commited to his company his efforts and leadership might still come to fruition.

  • Report this Comment On August 08, 2013, at 6:35 PM, cmalek wrote:

    You cannot compare the two memberships. The two communities served are totally different. LNKD is a serious site for professionals while FB is a gossip site for twits. You will never see a "I just took a dump. HA HA HA" type of listing on LNKD. By their very nature FB members are driven to post daily, if not more often.

  • Report this Comment On August 08, 2013, at 8:15 PM, yardomd2 wrote:

    FACEBOOK/LINKEDIN can enter free market healthcare bidding on internet and get bigger than MICROSOFT. MEDI BID is doing it already (like PRICELINE in travel). US healthcare is the largest business in America, volume $2 Trillion per year, 4 times bigger than the military.

  • Report this Comment On August 08, 2013, at 11:59 PM, mikecart1 wrote:

    Comparing LNKD to FB is like comparing MSFT to AAPL. Yea they somewhat are in the same sector but they provide different products, are run with different business models, and everyone uses them both at some point in their lives.

  • Report this Comment On August 09, 2013, at 12:05 PM, snickerdoodle9 wrote:

    Not only is Facebook less favored as a stock to own but Facebook is deemed a " double whammy " as a less environment friendly community and has also become a " hackers haven " for the purpose of scamming many unsuspecting victims . Hackers are hiding behind the profiles of friends who are already on your list , sending friend requests hoping that you will reconfirm them , sending invitations for events that they are hoping that you will accept , sending insults to friends posing as if the insult(s) came from you . Solution : Know who your friends are , not to have too many friends that you are unaware of who is on your list , set strong passwords to your FB account . If you reconfirm a friend request from someone who is already on your list you have just invited and have added a hacker as a friend . With friends like that , who needs enemies ?? ......

  • Report this Comment On August 09, 2013, at 12:29 PM, snickerdoodle9 wrote:

    Facebook has also become a " hackers haven " for the purpose of scamming many unsuspecting victims . Hackers are hiding behind the profiles of friends who are already on your list , sending friend requests hoping that you will reconfirm them , sending invitations for events that they are hoping that you will accept , sending insults to friends posing as if the insult(s) came from you . Solution : Know who your friends are , not to have too many friends that you are unaware of who is on your list , set strong passwords to your FB account . If you reconfirm a friend request from someone who is already on your list you have just invited and have added a hacker as a friend . With friends like that , who needs enemies ?? ......

  • Report this Comment On August 12, 2013, at 10:50 AM, jordanwi wrote:

    And the most obnoxious use of the word "prove" goes to...

  • Report this Comment On August 12, 2013, at 4:21 PM, jonbr wrote:

    My conern with this analysis is that the lower-engagement-per-user on LinkedIn, coupled with an equivalent revenue/user, suggests that LinkedIn is actually overvalued relative to Facebook. High engagement is ultimately what matters for monetizing attention, which is what any form of online media does (social or otherwise).

  • Report this Comment On August 17, 2013, at 5:49 PM, dsciola wrote:

    Interesting article.

    At the end of the day, a part of me does agree that you can't compare LNKD and FB based on user rates/user activity. FB is simply geared to be used more frequently (status updates, post pictures, Instagram, 'Likes', etc) whereas LNKD is geared to be used less frequently (update my resume, invite to connect a new contact I met for coffee, expand network, etc) for each's respective users...unless of course you are a recruiter, then you use LNKD more often than the avg Joe

    Curiousity Question for the Author

    Daniel,

    what made you use mrkt cap / member as your valuatuion metric? Why not P/E or P/FWDE or EV/EBITDA or P/S or something else? Why is mrkt cap / member, in your opinion, a better indicator of value for these 2 firms?

    Dom

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