LinkedIn (NYSE:LNKD) deserves credit for surviving when so many other once-promising social media sites flamed out.
Remember when Ello was going to disrupt Facebook (NASDAQ:FB), or when Justin Timberlake had people excited about a MySpace revival? Neither of those things turned out as planned, and in reality, over the entire history of the Internet, you can argue that enduring social media success has been nearly impossible. That space has a graveyard featuring Friendster, Classmates.com, MySpace, and a handful of others -- some of which still exist, but all of which are sad shells of their former glory.
LinkedIn has avoided that fate by carving out a position as a social media platform built around the employment market. It's a site/service not just for people actively looking for work and for those hiring, but also for professional opportunities in a broader sense. If you're a white-collar worker who hopes to network and may currently, or at some point in the future, be looking for a job, you pretty much have to be a member.
That has given LinkedIn more stability than most Facebook rivals. Because it's not simply a competitor, but a more refined social media play with a specific focus, the company has carved out a niche. But, being the "Facebook for business" -- which is never how the company has defined itself, but is how many see it -- leaves LinkedIn vulnerable.
What's the good news?
On the positive side, LinkedIn saw increases in revenue for its three major business areas in 2015. In addition, in the fourth quarter of 2015, it saw overall revenue jump by 34% over Q4 2014, and the full-year number jumped 35% in 2015 to $2.99 billion. Here's how that broke down across the company's biggest business segments.
- Talent Solutions, essentially the company's hiring platform, which also includes its Learning & Development segment, grew 45% year over year in Q4 to $535 million, and jumped 41% $1.87 billion for the year.
Marketing Solutions, where about 50% of the revenue comes from sponsored posts, grew 20% year over year in Q4 to $183 million, and grew 28% to $581 million in 2015.
Premium Subscriptions also grew in Q4 by 19% to $144 million. That segment increased by 22% year over year to $532 million for all of 2015.
"Q4 was a strong quarter for LinkedIn, bringing to a close a successful year of growth and innovation against our long-term roadmap," said CEO Jeff Weiner in the Q4 earnings release. "We enter 2016 with increased focus on core initiatives that will drive leverage across our portfolio of products."
What are the risks?
While LinkedIn appears to have a solid business, it remains vulnerable to a push into jobs solutions from Facebook. The problem -- and this is personal feeling, not hard evidence -- is that most people go to LinkedIn out of obligation, not for fun. Sometimes the same may be true of Facebook, but the social media leader generally mixes pleasant interaction with family and friends with the occasionally networking opportunity.
In some ways, Facebook is a cocktail party you were attending anyway, while LinkedIn is the semi-mandatory training you have to take or risk missing out on future opportunities. People are voluntarily attending one while they would skip out on the other if they could, and that leaves LinkedIn vulnerable.
How risky is it?
In the short term, LinkedIn seems like a safe, slow- to moderate-growth platform, but it's hard to get past the fact that Facebook could crush it if it wanted to. People may not have their full work history on the social media leader, but they generally have a lot of it, with their current and many past jobs listed. If the Mark Zuckerberg-led company decided it wanted to take some of the jobs business away from its rival, it likely could easily enough.
Everyone is already on Facebook, and most people are visiting it many times a day. The only reason it has not gone after LinkedIn is that it probably sees the site as a niche player in a space that's not yet worth its focus. However, with LinkedIn doing about $3 billion, that's not an insubstantial chunk of Facebook's nearly $18 billion in 2015 revenue.
At what point will the smaller company have established a big enough market that the bigger one will decide to to take it? Of course, just because Facebook might decide to target LinkedIn doesn't mean it will succeed, but it would certainly make things harder for the company.
That takes an otherwise stable company on a solid growth path and adds a major level of risk. It's reason enough for me to leave LinkedIn stock alone, simply because investing in a company that may, at any moment, wake a sleeping giant that could hurt, if not destroy it, seems like a bad idea.