LinkedIn (NYSE:LNKD) is not the typical social media site. Ordinarily, on social media you are bombarded with posts that you really couldn't care less about. For instance, on Facebook and Twitter, you may see the latest Justin Bieber video or a political meme that makes about as much sense as a dollar. For many people, this is not a problem, but after "unfollowing" everybody, it takes away the point of having a social media presence.
LinkedIn, on the other hand, carries a very different aura. You just know that you should be on your best behavior on LinkedIn. You know that it is better to have no picture at all, rather than the picture of you hanging upside down with no shirt on from Spring Break a few months ago. Of course, a professional headshot is always ideal.
What does this mean? It means that LinkedIn has established itself as a better social media site. LinkedIn has a purpose that stretches beyond just a place to catch up with old college buddies, or new buddies you meet while out and about.
LinkedIn is thriving in a world where careers are nonexistent
One of the drivers behind LinkedIn's success is the fact that consumers are less concerned with a long-standing career at one firm, and more concerned with simply making money. For example, in previous decades, it was common to stay at one company for 40 years. After all, it was probably offering a pretty nice pension, so why leave?
Unfortunately, this has changed. Instead of sticking with one company for 40 years, we are seeing an environment where individuals are jumping ship when the next "better" offer becomes available. This is not a bad thing because it allows for greater competition in the marketplace, and knowing that your replacement is one step away will cause you to work harder and further your education.
This is important because it means that, even after getting a new job, LinkedIn users will continue to be active on the site, searching for a "better" job or opportunity. This goes beyond the typical logic behind LinkedIn, which is for an unemployed person to find a job, then neglect their page.
The numbers back up the theory
The three main divisions and sources of revenue for LinkedIn are premium subscriptions, marketing solutions, and talent solutions. Of these three, talent solutions is the most productive and, based on the trend above, it is easy to see why.
LinkedIn's talent solutions division allows recruiters to pay LinkedIn to use premium features to communicate and check on potential candidates. This coincides with the shift toward a world where recruiters are constantly looking for better talent, as opposed to sticking to their guns.
Many businesses do not care to keep employees for 40 years anyway. In a world where technology and education is evolving too rapidly for most people to pace, it is more efficient for a business to hire somebody who picked up experience elsewhere. LinkedIn's talent solutions allows recruiters to do just this. They can search for potential candidates based on experience and fill holes in the workforce quickly, efficiently, and confidently.
More importantly, according to LinkedIn's Feb. 13, 2014 10K, talent solutions has grown about 229% over the last two years, compared to marketing solutions and premium subscriptions at 132% and 190%, respectively. This growth has allowed LinkedIn to almost triple its revenue and more than double net income during that same three-year period.
Also, LinkedIn's 3.12% operating margin in 2013 was the lowest since the company's 2009 net loss, and 46% lower than in 2012. This indicates that LinkedIn spent a significant amount in an effort to generate revenue. Some of these expenses include a concerted effort in the Chinese marketplace, as well as other market expansion plans. These plans have caused concerns for some investors, and it is the primary reason why LinkedIn's share price has slumped after hitting a September 2013 peak.
LinkedIn is a buy, but be wary of overly aggressive expectations
One of the biggest concerns for LinkedIn in the short-to-medium term is overly aggressive expectations. The stock price went to the moon after the IPO about two and half years ago, and this caused analysts and investors to expect 100% growth every year. Perhaps that is an exaggeration, but the point is that LinkedIn is expected to continue to reach the moon on both financial statements and the stock chart. Unfortunately, as with any business, expansion taken wind out of the company's sails.
With that in mind, the competitive spirit of the Chinese market is a tremendous opportunity for LinkedIn, and I laud the company for putting forth the effort. There is a substantial amount of successful and hopeful professionals in China. LinkedIn allows recruiters to find and hire talent quickly, efficiently, and confidently. This will not only cause LinkedIn's talent solutions segment to explode over the next few years, but also individuals seeking a better job will be more active on the site. This will improve LinkedIn's ad revenue and premium subscriptions over time.
Spencer Knight has no position in any stocks mentioned. The Motley Fool recommends Facebook, LinkedIn, and Twitter. The Motley Fool owns shares of 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.