February was a rough month for LinkedIn (NYSE: LNKD). After posting earnings, the stock dropped 40% due to guidance that implied slowing growth in 2016.
The market is down on the stock, but Motley Fool analysts Dylan Lewis and Sean O'Reilly think there are still plenty of opportunities for the company to continue growing. In this video, they explain why investors should keep their eyes on the company's Sales Navigator, Lynda and Sponsored Updates products.
A transcript follows the video.
This podcast was recorded on Feb. 26, 2016.
Sean O'Reilly: So, during the conference call, did he mention any of the growth drivers or anything else they're doing to ... 2016 may be a tough macro year or whatever, but beyond 2016, where else is he looking for growth?
Dylan Lewis: I think that's one of the things that I am very optimistic about with this company. So, they have this Sales Navigator business solution which is basically a social selling tool. The idea here is, it's going to help with lead recommendations for salespeople, contact management ...
O'Reilly: That could be huge, yeah.
Lewis: ... It integrates well with Salesforce. So, it's in part lead generation, and it's in part knowledge management. And I think, in the recent conference call, one of the analysts estimated that it was currently at like a $200 million run rate.
O'Reilly: Did he say to the company, "We've estimated your ... "
Lewis: Yeah.
O'Reilly: So, that's what he said, OK.
Lewis: It was in the form of the question, "This is roughly what we're saying, can you confirm that?"
O'Reilly: "Can you say we're insane or not?" (laughs)
Lewis: Yeah. So, CEO Jeff Weiner did not deny that, so I think that's roughly what you can expect. In the past, the company has said that they can scale that to a $1 billion business. So, huge runway for growth there. They're obviously still integrating the Lynda acquisition into their offering.
They're really just beginning to see a revenue contribution come through from that acquisition, and if you remember, correct me, I think it was a $1.5 billion acquisition, I think they saw maybe $49 million in revenue contribution in the most recent quarter. So, it's going to take a while, but I think, as time passes, you're going to see that be more and more accretive to earnings.
O'Reilly: I wonder what they're thinking with that. Because, I understand, if I wanted to learn how to code or something, there's tutorial videos on lynda.com.
Lewis: Yeah, the skill-building integration there is obviously really great. Or, you know, they could do something like certifications, where you take these classes and you're LinkedIn certified in the specific skill that job seekers are...
O'Reilly: Oh man!I'm LinkedIn certified! (laughs)
Lewis: Yeah. One of the other really great business segments I'm excited about is their sponsored updates. This is really no different from what you'd see in your Facebook feed, if you were scrolling through and saw an ad for Google or pants or something like that. This segment grew at approximately 85%, and so, ball-parking, that's roughly $90 million, which comes in at over half of the marketing solutions revenue. And this is the first time they've been at that level.
O'Reilly: Wow!
Lewis: So, this is something they've talked about in the conference call quite a bit. They're going to continue to feed that segment. They're going to build out some conversion tracking, and targeting tracking to help it be a little bit more valuable to the participating businesses. But, that's obviously a business that scales very well. It's not ever going to be something that is on par with what Facebook is able to do in terms of ads, or what Google does in terms of ads, just because the user base is so much smaller, and I think the cadence that people go back to the platform is not nearly as frequent.
O'Reilly: Right.
Lewis: But I think you have to like ... I mean, I was scrolling through LinkedIn today just to get a UI experience and see exactly how these were being integrated, and it's exactly the same experience that you're used to with all the various social media outlets.
