LinkedIn Corp: A Strong Buy at 52-Week Lows?

LinkedIn has years of double-digit-revenue growth ahead. The company has a large addressable market, and it is growing its footprint in China. The dip is a buying opportunity.

May 12, 2014 at 11:05AM

Professional networking platform LinkedIn (NYSE:LNKD) saw its stock price hit new 52-week lows after it reported earnings and growth metrics that failed to live up to lofty expectations.

But, LinkedIn has a large addressable market and can grow its top line significantly in the next few years. The company now has more than 300 million members from over 200 countries, and is actively working to expand its marketing platform by investing in growing its user base in China -- something its social-media peer, Facebook (NASDAQ:FB), isn't permitted to do.

The dip in the company's stock price is a good opportunity for accumulating shares.

Revenue is growing
LinkedIn's sell-off was aided by management's guidance for future periods, but the company is still seeing robust growth. In the last quarter, LinkedIn's revenue increased to $473 million, a 46% year-over-year growth. The company is investing heavily, and as a result swung to a net loss per share of $0.11. 

LinkedIn's core talent solutions business saw healthy growth of 50% year over year and $276 million in the last quarter. Revenue from this segment made up more than 58% of the company's total revenue, and is likely to remain that way going forward. 

LinkedIn's content marketing platform is gaining momentum, as its marketing solutions revenue increased 36% year over year to $102 million. Marketing solutions revenue made up 22% of total revenue, and has the potential to make up a larger piece of the pie over time. 

Content marketing drives almost 20% of the company's marketing solutions revenue, and 70% of it comes from mobile devices. The segment has the potential to be a much bigger piece going forward, as users are utilizing mobile devices to access the Web. LinkedIn can be a much bigger content publishing platform for leading business figures under the Influencers function. 

The company's Sales Navigator product has gained momentum in adding newer subscribers, and LinkedIn's management disclosed that retention rates of paid subscribers are at two-year highs, which indicates satisfied paying customers.  

Big addressable market
LinkedIn is increasingly growing its mobile user base, as the company now gets 43% of its monthly unique visitors from mobile devices. Management expects this number to be more than 50% of total monthly visitors in the latter part of 2014. 

Since a majority of LinkedIn's revenue comes from subscription-based products, the company's deferred revenue gives insight into future revenue. Last quarter, LinkedIn's deferred revenue grew 51% year over year to $480 million. 

In addition, the company's management has pointed to a total addressable market of $27 billion for the online recruitment industry, and since 2014 revenue is expected to be just over $2 billion, there is significant growth room if the company captures a bigger piece of that pie. 

In addition, LinkedIn is now getting 67% of its total users from outside the U.S. The company has 100 million users in the U.S. and is planning to grow its footprint in China. LinkedIn can operate in the massive Chinese market, where its social media counterpart, Facebook, doesn't have a presence due to regulatory hurdles.

Facebook would probably have a much larger user base than 1.28 billion monthly users if it had a solid presence in China, but the site has been banned, at least for a while. However, Facebook's $19 billion acquisition of WhatsApp will lessen the blow. WhatsApp is growing rapidly and now has more than 500 million users. WhatsApp has a big user base across emerging markets and will aid Facebook's penetration in Asia. 

On the other hand, LinkedIn doesn't face any such government scrutiny from China. The company has said there's roughly 140 million professionals and students in the Chinese market, and it's making heavy investments to grow its Chinese user base from only 4 million users currently. LinkedIn has more than 25,800 corporate customers, many of whom will be very interested in the Chinese territory as well. 

Going forward
LinkedIn has the potential to substantially grow its international subscriber base, especially through expansion in key markets like China. The company is also trying to drive more utility for users and advertisers through content marketing. The company is expected to generate $2.06 billion-$2.08 billion in revenue in 2014, which leads to a year-over-year revenue growth rate of 36%. LinkedIn has a first-mover advantage in the space, which is a notable positive for the company.  

Investors are fearful of LinkedIn's slowing revenue-growth rate, but that shouldn't be the concern, as the company has a history of giving conservative guidance. LinkedIn has a large addressable market and will be able to grow revenue by double-digits for a very long time. The big sell-off of the company's stock is a great buying opportunity for longer-term investors.

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Ishfaque Faruk has no position in any stocks mentioned. The Motley Fool recommends Facebook and LinkedIn. 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.

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