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LinkedIn Corp. Gets Edge in China Market Today

Google's spectrum of web applications, including its search, are either banned or have very limited access in mainland China. And you won't find Facebook there at all. But LinkedIn (NYSE: LNKD  ) ? Not only does the world's largest network of professionals have a presence there, but also China is arguably the network's greatest opportunity.

Image source: LinkedIn.

The opportunity
Today, LinkedIn has about 4 million users in China. But LinkedIn says that it hopes it can attract 140 million new professionals in the country with its just-launched Chinese-language version of the network in the country, according to The Wall Street Journal, which recently interviewed LinkedIn CEO Jeff Weiner. That would boost the company's current user base of 277 million by about 50%.

Though LinkedIn didn't give a time frame on its target for 140 million users in the country, a few years seems feasible. One in five of the world's knowledge workers, according to Weiner, are located in China.

Of course, LinkedIn isn't without competition in the country. The robust number of knowledge workers has sparked two competing online professional networks similar to LinkedIn: Zhaopin and 51job. With competitors already engaging Chinese knowledge workers, LinkedIn's Chinese-language site is imperative. LinkedIn thinks the site will "quickly change the competitive landscape," according to the Journal.

LinkedIn obviously has greater appeal to the Chinese government than Facebook, which doesn't have any access to the Mainland. That's probably because of LinkedIn's compelling value proposition as a source of attractive networking opportunities for the Chinese to work abroad, given LinkedIn's prominent presence in the West. This is LinkedIn's key competitive advantage over established professional networks in the country.

"Weiner said that in many ways, LinkedIn's goal in China is 'aligned' with the Chinese government's efforts to 'create economic opportunity for a thriving middle class,'" the Journal's Reed Albergotti reports.

An expanding moat justifies a wild valuation
LinkedIn's stock sold off recently after the company reported fourth-quarter results. Shares slid as far as 25% from their all-time highs about five-and-a-half months ago with the help of a 15% sell-off in the preceding days after the report. The major impetus among investors was a clear deceleration in growth of many important metrics.

With growth concerns, LinkedIn investors are looking for a reason to stay bullish on this pricey growth stock. Enter LinkedIn's China story. The company's story in China is probably one of the best reasons to hold on to this stock despite its pricey valuation. If the company can bolster the service with an additional 140 million knowledge workers from China, LinkedIn's economic moat (or competitive advantage), based on a stronger network effect with more global members, will make the business more sustainable than ever as the world's leading network of professionals.

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Daniel Sparks

Daniel is a senior technology specialist at The Motley Fool. To get the inside scoop on his coverage of technology companies, follow him on Twitter.

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9/3/2015 1:16 PM
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