LinkedIn: A Buying Opportunity on the Dip?

The professional networking giant LinkedIn  (NYSE: LNKD  )  is growing rapidly and now has more than 277 million members across the globe, which marks a 37% year-over-year increase. Professionals outside the U.S. now make up 66% of LinkedIn's total membership count, which shows the company's global nature.

Total addressable market
Due to its smaller size, LinkedIn has much more room to grow relative to social media giant Facebook  (NASDAQ: FB  ) , and more diverse revenue streams as well. Since there are 3 billion members of the global workforce, LinkedIn's user base can grow exponentially in the future.

Facebook already has 1.23 billion monthly users, but is planning to grow Internet usage in under-penetrated regions across the globe with initiatives like Internet.org, which will bear fruit for all Internet companies in the long run. 

LinkedIn stated that there are now more than 3.5 million active company pages on its network, so the company has much more growth room for corporate customers and sponsored marketing clients. The market for staffing and jobs is a $27 billion market, so LinkedIn can service a substantial portion of this total addressable market.

To this end, LinkedIn is making a big push for growing its sales, as evidenced by the huge increase in sales reps in 2013. These heavy investments shrunk the company's operating margin to 3% in 2013, from almost 6% in 2012. LinkedIn has only 4 million users in China, and the company intends to ramp that up substantially in the next few years. LinkedIn did a follow-on equity offering in 2013, and now has $2.3 billion of cash in its balance sheet to fund future investments in R&D and acquisitions. 

Strong metrics
LinkedIn's customer engagement levels have seen stellar increases as more of its registered members are coming back to the platform to engage with various forms of content. According to comScore data, the combined monthly active user base of LinkedIn and SlideShare stood at 187 million in the last quarter, excluding mobile. The company has seen its mobile usage increase as well; in the last quarter, 41% of its total unique users came from mobile devices. 

LinkedIn revenue for 2013 stood at $1.53 billion, a 57% year-over-year increase, and GAAP EPS increased 18% to $0.23, which would have been much higher if the company hadn't been investing heavily for future growth. The company's operating cash flow increased 63% to $436 million, and free cash flow stood at $159 million in 2013. The company's revenue base is well-rounded, as it gets 61% of its revenue from the U.S. and the rest from across the globe. 

Segment revenue growth
The company's talent solutions business grew 53% year-over-year to $246 million in the last quarter and made up 55% of total LinkedIn revenue. Marketing solutions revenue increased 36% year-over-year to $114 million. Revenue from marketing made up 25% of total LinkedIn revenue in the holiday quarter. Premium subscription products grew a healthy 48% year-over-year to $88 million and made up 20% of LinkedIn revenue in the last quarter.

Since most of LinkedIn's revenue is from subscription products, the company's deferred revenue provides a good snapshot of future revenue. At the end of 2013, LinkedIn's deferred revenue stood at $392 million. The company finished off 2013 with 24,500 corporate customers, which is a 49% increase from year-end 2012. A larger base of corporate customers will provide substantial tailwind for LinkedIn's future revenue growth and free cash flow. 

The company recently disclosed the acquisition of Bright for $120 million, with 27% of the price tag in cash and the rest in stock. Bright utilizes data and relevance algorithms to match employers and job prospects and would be a great tool for growing LinkedIn's talent solutions business. In addition, the company has increased its efforts to be a larger marketing-focused firm. In the last quarter, the company stated that its sponsored updates are doing well, and it now has 2,000 customers for sponsored content and updates. Two-thirds of sponsored marketing revenue comes from mobile devices, which is a great plus for the company. 

Going forward
LinkedIn expects 2014 to be in the range of $2.02 billion-$2.05 billion. The revenue guidance of $2.05 billion implies a 34% increase, which is a sizable decline in revenue growth from the company's 2013 growth rate of 57%. Some investors might have been spooked by the slowdown in revenue growth of its talent solutions business, which might have sparked the sell-off. The underperformance in LinkedIn shares creates a buying opportunity as the company reaches higher user penetration rates and grows its corporate clientele. 

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Read/Post Comments (10) | Recommend This Article (8)

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 April 03, 2014, at 2:54 PM, Pkylie wrote:

    Keep pumping the PONZI scheme, MF.

    Insiders and company have taken over $5 Billion in profit.

  • Report this Comment On April 03, 2014, at 6:25 PM, KateyG wrote:

    I don't know why MF keeps advising us to buy this stock, except that maybe they took their own bad advice and bought lots of shares themselves, and are trying to make back their money. I followed their advice after watching the video they made re LNKD, and I bought some shares. You were very convincing, MF! I have lost over $1k so far. Thanks MF. I will never listen to your advice again!

    NOr will I watch any more of your "stunning" videos.

  • Report this Comment On April 04, 2014, at 2:41 AM, Interventizio wrote:

    KateyG, TMF is for investing in the long run, not for trying to make some quick bucks at the pinch.

    They tell you their idea, advising to make further research. If you like to follow pieces of advice so passively, then I suggest you invest in an index funds.

    TMF makes cases for investing in many many companies, it's then up to you to decide and to make up your own mind according to info you get.

    SILC and DTLK, companies I didn't know anything about, have got me +100+% and +30% so far, thanks to MF, just to name 2.

    I'm very happy with TMF, and I think they are unique.

  • Report this Comment On April 04, 2014, at 10:54 AM, mispoken wrote:

    Katey,

    Then why are you at this website reading articles and making comments. If you want to gamble for short term gains go to the casino.

  • Report this Comment On April 04, 2014, at 3:47 PM, theredtomato wrote:

    I am relatively new to MF, and invested in Linked In for my SEP IRA, based on the strong recommendation from MF. Although I am looking at the long term, I am still a bit shocked at how much it has declined in such a short time. My account is with Fidelity, and their weighted summary of various brokerage firms was a strong sell when the stock was much higher, and it continues to be a strong sell even at the current, much lower price. I am holding on, but nonetheless, I am beginning to wonder if I made a bad mistake.

  • Report this Comment On April 04, 2014, at 6:12 PM, mispoken wrote:

    Theredtomato,

    Analyst recommendations are extremely short term. Extremely. You're best to not even pay attention to them. I would go as far as saying analysts make those recommendations based on who they want to make money for that day (longs or shorts). Personally, I just bought more and averaged my cost down. Hoping it goes down even more so I can buy another 1/3 of it. I don't care what it does this year, or next. I have a 20+ year time frame, that's what I'm focused on.

  • Report this Comment On April 04, 2014, at 6:24 PM, mispoken wrote:

    Someone once wrote....."Linked In is a well managed company with considerable long term growth potential. As difficult as it seems, ignore the short term gyrations and focus on the long term. It is an impressive prospect."

  • Report this Comment On April 08, 2014, at 3:02 AM, Proteas8 wrote:

    A couple of thoughts:

    - I also agree about buying for the long term, but at the same time this can a great excuse for people selling advice. If things go down in the short-term they will tell you that you should be paying attention to the long term. And, of course, in the long-term, most stocks rise (unless we're in a crisis).

    - The market was at record highs and the tech stocks in particular. There was a big risk for people buying at these levels.

  • Report this Comment On April 08, 2014, at 2:06 PM, BillFromNY wrote:

    "They tell you their idea, advising to make further research. If you like to follow pieces of advice so passively, then I suggest you invest in an index funds."

    I almost agree with you, Interventizio, but LinkedIn really pushes your justification to the limit. LinkedIn has been twice recommended and also made the subject of one of those over-the-top reports that MF uses to catch new members.

    Subscribers to RB pay more than chump change to use the service and when MF pushes a stock so aggressively, even though they know that its current value is considered to be at the dangerous nosebleed level by traditional market standards, MF should warn members of the possibility of a strong correction and remind them of the risks that might prevent it from ever regaining that high.

  • Report this Comment On April 08, 2014, at 2:27 PM, BillFromNY wrote:

    Oh, I have no personal stake in the decline. In fact, I am nosing around trying to determine whether I should enter here but LinkedIn seems to still have a bit of a further fall ahead.

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