2 Reasons to Add LinkedIn to Your Roth IRA

While LinkedIn's valuation scares away some investors, the rapidly growing professional social network is the second addition to the real-money Pencils IRA Project portfolio.

Mar 17, 2014 at 10:12AM

The Pencils IRA Project is dedicated to building a portfolio of promising businesses that can be followed and replicated by both young and new IRA investors. Each holding of the Pencils IRA Project must meet the five pillars of a "megagrower" business -- purpose-driven business, innovative products, visionary leadership, increasing cash-flow production, and strong company culture -- with significant potential to create stakeholder value and substantially beat the market over the long haul.


The second addition to my personal real-money Pencils IRA Project portfolio is LinkedIn (NYSE:LNKD), the rapidly growing professional social-networking platform that is familiar to many college students and young adults. LinkedIn is quickly proving that its service entails much more than a place to stash a resume. Its average monthly number of unique visitors totaled 183 million in 2013, up 45% from 2012. Given Facebook's (NASDAQ:FB) 1.3 billion average active monthly users and Twitter's (NYSE:TWTR) 645 million registered users, LinkedIn still has plenty of room to expand as the world's largest social network for professionals. The company is also differentiating itself from other players in the job search and recruitment field, such as Monster Worldwide (NYSE:MWW)

The company does quite well in my "megagrower pillars" evaluation and promises to reward patient long-term investors. Let's see how LinkedIn stacks up in my first two pillars -- I address the three remaining pillars in a follow-up article.

1. Purpose-driven business
"People matter." These are the words Reid Hoffman, LinkedIn's founder and chairman, uses to describe his interest in the social-media phenomenon and motivation to start LinkedIn. 

LinkedIn's purpose, in a nutshell, is to create economic opportunity for every professional in the world (3.3 billion individuals and counting). "I can't think of a more worthwhile purpose than investing in tools that create economic opportunity for people," says LinkedIn CEO Jeff Weiner. So far as purpose-driven businesses are concerned, LinkedIn is at the top of the list with its focus on utilizing social-media platforms to empower people economically worldwide.

2. Innovative products and services
LinkedIn has an expanding arsenal of social-networking products to serve a growing worldwide base of professionals. LinkedIn ended 2013 with 277 million registered members, adding 75 million members in 2013 alone (70% of those new members coming from outside the U.S.). The company's product offerings fall into three general categories: talent solutions, marketing solutions, and premium subscriptions.

LinkedIn's largest segment -- talent solutions -- saw revenue grow 64.19% in 2013 to $859.67 million. Talent solutions focuses on providing tools (such as Linkedin Recruiter) for professional organizations and enterprises to post jobs and recruit top talent from the job-seeking pool. Corporate customers under contract with LinkedIn grew 49% year over year in the fourth quarter of 2013 to 24,500.

In February, LinkedIn announced its $120 million acquisition of Bright, a company specializing in data insights and algorithms to help match prospective employers with job seekers. Eduardo Vivas, founder of Bright, shared his excitement about joining the LinkedIn team: 

Today, employers complain that there are no qualified applicants, yet qualified applicants often have their resumes overlooked. This marketplace inefficiency called for a technological solution and we resolved to heed that call. ... We decided to join LinkedIn because of what we lacked -- the ability to apply this technology across the entire economy. We share LinkedIn's passion for connecting talent with opportunity at massive scale. And we agree that the old models for online recruiting are hopelessly broken. 

Monster Worldwide also offers job searching and recruiting services to about  200 million registered members, but the company has struggled to compete with professional social-networking services like LinkedIn. Monster's 2013 10K says as much: "Professional networking websites have had significant success over the past several years in gaining large numbers of members and attracting employer customers with products that compete directly with our products." The fact that Monster's revenue has declined 18.7% since 2011, while LinkedIn's has increased 192.7% over the same period, serves as an indicator that professionals are drifting toward holistic social-networking platforms versus services that only focus on listing and seeking jobs. 

LinkedIn's marketing solutions segment's revenue grew 40.3% in 2013 to $362.4 million. This segment generates revenue primarily through outside advertisers and provides a new option for users to pay for "sponsored posts," similar to Facebook and Twitter. LinkedIn's premium subscriptions segment also saw impressive growth in 2013, with revenue increasing 60.9% to $306.5 million. 

2014 will bring the full unveiling of several new offerings from LinkedIn. The company's sales solutions segment -- a service for sales professionals to build connections, find leads, and shorten the "sales cycle" -- will become a core component of the business this year. LinkedIn's original content continues to find momentum through its Pulse professional news app (delivering personalized professional news to each user), a new publishing platform for members to publish original content through blogs on LinkedIn, and the company's "Influencers" program, where notable individuals (including Barack Obama, Bill Gates, and Motley Fool co-founder and CEO Tom Gardner) publish original articles on LinkedIn.

With an expanding arsenal of tools, LinkedIn is aiming, in the words of The Washington Post's Sarah Halzack, "to become the virtual town square for our professional lives." LinkedIn plowed $395.6 million -- that's 26% of the company's 2013 revenue -- into product development in 2013. Innovation is ingrained in LinkedIn's DNA, as evidenced by the company's global expansion into countries like China, its product development, and its ongoing expansion of recruiting services and capabilities. 

Foolish bottom line
Other social networks, such as Facebook and Twitter, are not specifically gearing themselves as avenues for professionals to engage in networking. Facebook and Twitter have undoubtedly positioned themselves incredibly well as leaders in the social-networking movement, but LinkedIn is masterfully positioning itself as the go-to network for worldwide professionals. Similarly, competitors such as Monster Worldwide are acknowledging that professionals are shifting from mere job search and recruitment services to holistic professional social networks like LinkedIn.

For these reasons, as well the three remaining megagrower pillars, examined in my next article, I am excited to add LinkedIn to the Pencils IRA Project.

Want to Retire Wealthy?
It's no secret that investors tend to be impatient with the market, but the best investment strategy is to buy shares in solid businesses and keep them for the long term. In the special free report "3 Stocks That Will Help You Retire Rich," The Motley Fool shares investment ideas and strategies that could help you build wealth for years to come. Click here to grab your free copy today.

David Kretzmann owns shares of LinkedIn. You can follow David on his Foolish discussion board, Pencils Palace, on CAPS, or on Twitter @David_KretzmannLearn more about David's Pencils IRA Project at Fool.com. 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.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers