The demise of LinkedIn (NYSE:LNKD) since the company announced Q4 and 2015 annual earnings on Feb. 4 is still being felt, albeit a little less painfully. Though the quarter and year were both on target with pundits' estimates -- and once again demonstrated outstanding top and bottom line growth -- the forecasted 20% jump in revenue for 2016 did not impress.
The result was a dramatic decline in value, with LinkedIn's stock price dropping from $192.28 the day earnings were announced to flirting with the $100 a share level. Things have improved for shareholders since last month's debacle, but LinkedIn still has a big mountain to climb. One way LinkedIn can reinvigorate its sky-high sales growth is to improve the revenue diversification from its three divisions -- and a new tool could be just the ticket to get things jump-started.
A drumroll please
Of LinkedIn's three divisions, its Marketing Solutions is its second largest contributor to revenue, behind its job-related Talent Solutions unit. Last year proved to be another solid, if not spectacular, year for marketing solutions, with sales growing 28% year-over-year to $581 million. Premium subscriptions brought up the rear in 2015, generating $532 million in revenue.
Of its three business units, marketing solutions could prove to be LinkedIn's saving grace. The potential upside is tremendous thanks to a global shift to digital marketing, and it appears LinkedIn is finally grasping the impact marketing can make going forward. LinkedIn has taken a page from Facebook's (NASDAQ:FB) Custom Audience feature with a new tool that allows marketers to upload lists of as many as 30,000 unique companies to better target members with relevant ads.
The new functionality builds on LinkedIn's existing capabilities, though its marketing partners were limited to uploading data on a mere 100 companies, or accounts. The objective is to give marketers a quick, relatively easy means of pushing spots to those LinkedIn members that are most likely to respond.
Whether it's Facebook's 1.59 billion monthly active users (MAUs), or LinkedIn's 414 million members -- 100 million of whom access the site monthly -- folks are less likely to view online ads negatively if the spots are relevant. Not to mention better ad targeting also leads to a better return on investment (ROI), a metric most every marketing professional lives by. Which, in turn, translates to higher ad rates.
Why it matters
Talent Solutions accounted for about 63% of LinkedIn's $2.99 billion in revenue last year, while marketing contributed just 19%. In a world that is seeing more marketing dollars than ever being allocated to digital ads, LinkedIn's marketing sales have been relatively woeful compared to the growth of other social media alternatives.
What makes its so-so marketing sales baffling is LinkedIn's member base is largely made up of professionals -- in other words, an advertiser's dream. But as the new ad targeting feature demonstrates, LinkedIn at least recognizes the opportunity marketing solutions represents, and is addressing its current shortcomings.
The introduction of LinkedIn's new and improved "flagship app" last December may have flown under some investors' radar. The flagship app is LinkedIn's way of "creating greater value" for members by personalizing the user experience. LinkedIn CEO Jeff Weiner described the app as a "new member platform," which speaks to LinkedIn's efforts to become more of a destination site -- like the Facebooks of the world -- as opposed to strictly a niche player for job-seeking professionals.
LinkedIn's efforts to improve engagement are beginning to pay dividends, as evidenced by its increased content, page views, and sharing among members, to name but a few improvements. And as site members check regularly, LinkedIn will have more opportunities for its advertising partners to get their spots in front of members.
Providing marketers with an easy means of targeting spots to LinkedIn's members is a positive first step, but just that. LinkedIn said it has a few other marketing solutions up its sleeve, but isn't ready to share specifics as yet. The upside is the new marketing tool, and others that follow, demonstrate that LinkedIn recognizes the potential digital spots represent. If implemented successfully, they will change its revenue dynamics for the better.
Tim Brugger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Facebook and LinkedIn. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.