LinkedIn [Nasdaq: LNKD] might look like it's standing in Facebook's shadow, but it's a company that has a number of hidden weapons that keep it from falling in Facebook's advertising trap.
LinkedIn offers a network much like Facebook's, but it instead caters to the professional market. As investors focus on Facebook and its possibilities, LinkedIn toils away in its position as the dominant professional network across the world.
Why is this important?
Although Facebook has a higher number of members, it's an umbrella platform designed to connect friends.
LinkedIn, on the other hand, caters to a professional identity. So even though Facebook has become the de facto social network globally, LinkedIn will thrive as an alternate network for professional contacts.
The great thing about LinkedIn is that it's not a competitor to Facebook. But it is in a valuable niche market. This places it more in competition with companies that operate traditional job websites, such as Monster Worldwide -- even though it's not exactly a strong competitor.
As LinkedIn continues to take up more of job seekers' time and job recruiters' spending power (more on that shortly), the greatest threats to its continuing domination of the professional networking segment are smaller professional networking sites that operate in different geographical markets across the world.
However with more than 160 million members, 61% of this membership in international markets. Meaning the company has cemented itself as the global leader in professional social networks.
What makes this leadership position so valuable? Because this niche market doesn't have to rely on Internet advertising, the business model that has stymied Facebook's profitability and turned Yahoo! into an also-ran.
LinkedIn has found a better way to make money, giving investors like you a way to finally profit along with social media.
When LinkedIn was created, a simple decision led to a billion-dollar opportunity. The company standardized users' resumes, making them the center of each profile. Competitors instead treated resumes as something that is uploaded and soon forgotten.
LinkedIn now had something very powerful: data!
This data allowed LinkedIn to package professional information and sell it to job recruiters.
Hiring is often an expensive endeavor, consuming a big chunk of time and money from companies. Yet LinkedIn has revolutionized this process.
The best part is that once you're on LinkedIn, your profile is among the first Google search results when anyone searches your name. The fact that people's resumes are so public creates a reason for users to keep coming back and making sure their resumes are updated.
That in turn makes LinkedIn's already valuable data even more valuable.
The proof of how successful LinkedIn has been is readily apparent.
Last quarter, revenues at LinkedIn surged by more than 100%! Meanwhile, Facebook's revenues grew just 45%.
And this, of course, is because LinkedIn created a product it can sell with recurring revenues. It only has to rely on the fickle advertising market for a quarter of its sales. More than half of sales come from its "hiring solutions" segment where the company packages information and sends it off to recruiters that are quickly moving on to LinkedIn as their main source for identifying talent.
Monster Worldwide, which has never been known for its vision or world-class execution, collected $1.3 billion in revenues through this model in 2008.
LinkedIn should easily be able to best Monster. The company already has 10,400 large "enterprise" accounts, of which the average account spent about $28,000 last year. However, as recruiters keep interacting with LinkedIn and its best-in-the-industry data, this number has been rising.
LinkedIn is not just adding new accounts, it's taking more and more of the job recruiting dollars from existing accounts. That only happens if your product is substantially better than rival offerings.
Recruiting is a highly fragmented industry relying on headhunters whose information can't match LinkedIn's database of job candidates. Meaning the opportunity for LinkedIn is nothing short of massive.
In the years ahead, the company will continue growing at rates much higher than Facebook as it consolidates its top-dog status over the recruiting industry.
And best of all, there's plenty of growing left to be done. LinkedIn estimates its addressable market at about $27 billion. Having made just $522 million last year, there's a dizzying amount of growth ahead.
So although Facebook might be the sound bite of this generation, sound bites don't lead to investing success; great business models do.
Facebook will continue to soak up all the attention, but LinkedIn has a much stronger ability to make money -- and should continue its gangbuster growth into the future. If you want a social media stock, make the right connection and go with LinkedIn.
Knowing all this, it's little wonder Motley Fool Co-founder David Gardner considers LinkedIn one of the best stocks you can buy right now.
To receive even more of his top stock ideas -- along with 12 more timely stocks for 2012 -- click the link below.