LinkedIn (LNKD +0.00%) stock is doing remarkably well lately; shares of the social network for professionals and business contacts have gained a staggering 30% in the last month alone. When something like this happens, the big question for investors is whether this explosive rise is based on solid fundamental performance, or pure market speculation. With this in mind, let's take a look at three key charts providing crucial information about LinkedIn.
Vibrant user growth
It all starts with users. LinkedIn needs to continue attracting new users and keep them engaged in the platform if it's going to build a consistently growing business over the years. Fortunately, the company is doing quite well in that area.
LinkedIn ended the third quarter of 2015 with 396 million members, an increase of 20% versus the same period last year. Actually, management said in the press release that the company has now surpassed the 400 million member milestone.
Source: LinkedIn.
Since LinkedIn is focused on a very particular niche, the company's potential market is theoretically smaller than the overall market opportunity for Facebook (FB +0.16%) or Twitter (TWTR +0.00%). However, LinkedIn is still doing quite well when it comes to both size and growth.
Facebook is the undisputed industry leader -- the company has a gargantuan user base of 1.55 billion monthly active users. Considering its tremendous scale, Facebook is still sustaining healthy growth rates; its monthly user base grew by 14% annually in the third quarter.
Twitter, on the other hand, is clearly underperforming LinkedIn. The company ended the third quarter with 307 million monthly user accounts when excluding SMS fast followers, yet Twitter's user base grew only 8% year over year during the period. Considering both current size and user growth trends, LinkedIn is doing materially better than Twitter.
Not only is LinkedIn producing solid user growth, but member page views grew 33% year over year last quarter, and since page views are growing at a faster rate than the user count, this shows engagement is also moving in the right direction. Mobile is growing at double the rate of overall member activity, and it now represents 55% of all traffic to LinkedIn, so the company is driving solid performance in this crucial segment.
Additionally, the company has 39,726 corporate solutions customers, a year-over-year increase of 31% during the third quarter. Corporations around the world are increasingly relying on LinkedIn for their human resources solutions, which means growing revenue for LinkedIn, and it also increases the value of the platform for users looking for a job or a business opportunity.
Vigorous sales growth
Both Facebook and Twitter make most of their revenue from online advertising. While this is a promising growth industry, both social networks need to compete against the ever-dominant Google. LinkedIn, on the other hand, is much more diversified, and the company is the top dog in human resources and professional contacts.
LinkedIn makes 64% of revenue from talent solution services for corporations looking for job candidates. Another 18% comes from premium user subscriptions, and the remaining 18% is online advertising. Importantly, the three growth engines are doing quite well: Talent solutions grew 46% last quarter, while premium subscription sales increased 21%, and marketing solutions revenue jumped 28%.
On the back of this healthy performance across the board, LinkedIn delivered a big increase of 58% in revenue during the third quarter, reaching $569 million. When excluding the negative impact from foreign currency fluctuations, constant-currency sales grew by a staggering 64% versus the third quarter in 2014.
Source: LinkedIn.
Improving profitability
LinkedIn is a growth business, and the company is investing tons of money in areas like technology infrastructure and acquisitions, such as the recent purchase of online learning platform Lynda.com. This means profit margins tend to be quite volatile, and investors need to be prepared for fluctuating earnings from LinkedIn in the short term.
However, the company delivered a big increase in profitability last quarter: Adjusted EBITDA -- earnings before interest, taxes, depreciation, and amortization -- grew 38% to $208 million.
Source: LinkedIn.
While it's hard to tell what will happen with profitability levels in the coming quarters, it makes sense to expect improving margins as the business matures and reinvestment needs slow down in comparison to sales in the years ahead. If this happens, growing sales and expanding profit margin should drive powerful earnings growth for investors in LinkedIn.
