The battering LinkedIn's (NYSE: LNKD) stock has taken since announcing Q4 and 2015 annual earnings on Feb. 4 has been well documented, and has left senior executives of the professional networking leader at a loss. CFO Steve Sordello went on record recently saying he was, "pretty surprised at the magnitude" of the stock price collapse, in which LinkedIn lost over half its value.
Jeff Weiner, CEO of LinkedIn, also noted at a recent company meeting, "We are the same company we were before the [4Q] earnings release." Investor's clearly have a different view since LinkedIn shared less-than-expected guidance for the current quarter and year, initiating its worst-ever sell-off. But based on some recent data from AddShoppers, one thing's for certain: LinkedIn's advertising partners certainly aren't complaining.
It's no secret that social media sites, led by Facebook (NASDAQ:FB) with its 1.59 billion monthly average users (MAUs) and ad targeting capabilities, have quickly become a significant market for digital advertisers. In the U.S. alone, an estimated $67 billion will be spent on digital spots this year and that figure is expected to climb to nearly $100 billion by 2019.
Consumers are quickly becoming more comfortable with online ads, and turning those spots into revenue for marketers thanks to the proliferation of e-commerce. Advertisers will pay for what works, and according to a recent report LinkedIn tops an all-important list that marketers covet: turning social media ads into big-ticket sales.
LinkedIn certainly can't match Facebook's more than 2 million advertising partners, but what it can do is drive high value purchases. As per AddShoppers report, the average purchase price of a LinkedIn-driven purchase influenced by an ad is nearly $207 per conversion. Facebook was the next publicly traded social media site on the list, generating an average purchase price of $164.76 per converted spot.
What Facebook lacks in per-sale value compared to LinkedIn it more than makes up for in volume. Data from ChannelAdvisor suggests nearly two-thirds of the sales garnered from social media ads in the U.S. and U.K. are driven by Facebook. That said, it's clear from a marketer's perspective that LinkedIn drives higher priced results, which should keep them coming back for more.
What it means
The likely reason for LinkedIn's outstanding converted ad dollar value is its more affluent, albeit smaller, base of 414 million members. Its appeal to professionals puts LinkedIn in a niche market all its own, which hasn't always worked in its favor, as today's shareholders know all too well. But for LinkedIn's advertising partners, those are some powerful results that should help drive continued growth of its Marketing Solutions division.
LinkedIn garners most of its revenue from its non ad-related source, Talent Solutions. Subscription sales and the sale of its job solutions accounted for $1.88 billion of its $2.99 billion in revenue last year, a 41% improvement over 2014. Marketing Solutions grew a more modest 28% year over year to $581 million in 2015, though that is certainly nothing to apologize for.
Advertisers aren't the only group that expect big things from LinkedIn: analysts certainly do. While many current headlines talk of recent downgrades, and there have been no shortage of them, some perspective is warranted. The more than 40 pundits that follow LinkedIn have a consensus price target of $183.29. That represents about an 80% potential upside based on its current share price as of this writing.
LinkedIn is never going to seriously threaten Facebook in the world of digital advertising -- the latter's size and scope is simply too much. But LinkedIn doesn't have to rival the Facebook's of the world in their sandbox to boost marketing sales thanks to its industry-leading ad conversion values. And that's good news for value investors with some gumption and patience.