LinkedIn (NYSE: LNKD) shareholders were rewarded with a solid Q4 earnings report Thursday, as shares shot up over 15%. Revenue for the quarter more than doubled to $167.7 million, and net income rose to $6.9 million, a 30% increase over its total a year ago.
Observers often compare the Internet start-up to fellow 2011 IPO Groupon (Nasdaq: GRPN), which also taps a huge user base and connects it with businesses, but really it bears more resemblance to career-focused websites like Monster Worldwide (NYSE: MWW) and Dice Holdings (NYSE: DHX).
Of LinkedIn's three revenue streams -- hiring solutions (recruiting and headhunting), marketing solutions (advertising), and premium subscriptions -- hiring solutions is by far the most important.
While the premium subscriptions are a clever idea, most of LinkedIn's members will continue to use its service for free, and it needs to grow its membership in order to be successful. Like eBay (Nasdaq: EBAY), which counts 97 million active users among its ranks, every new member adds an exponential benefit by locking out competitors, and the company must harness that potential to drive its other revenue streams.
Its marketing solutions revenue is also helpful, but there's little unique in running ads at the top of a website. Hiring solutions, however, are what sets LinkedIn apart.
With its huge resume database, and its ability to connect job-seekers with employers, LinkedIn's competitive advantage lies with its recruiting and headhunting services. Its social network gives it an edge over companies like Monster, Dice, and Career Builder, which offer those services but don't have the interconnected member network to support them.
Considering the importance of its hiring solutions, there's even more good news for LinkedIn investors than just the earnings beat. Hiring solutions grew the fastest of all three segments in Q4, up 136% year-over-year to $84.9 million. It now represents 50% of revenue. If that increase slows, I'll start questioning LinkedIn's growth potential, but I expect it to grab more revenue share as the professional networking site continues to assert itself as the rolodex for the 21st century.
That's bad news for the other online jobsites. Monster and Dice both dropped 18% in a single day recently after reporting underwhelming quarters, and both have lost more than 40% of their value in the past year. LinkedIn's promising numbers will only make things harder on the competition. That's why I'm making a negative CAPScall on Monster and Dice. Their days look numbered to me.
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