LinkedIn Beats Wall Street Expectations

on Nov 2, 2012
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On 1 November LinkedIn (NYSE:LNKD), the professional social network, gave an early Christmas gift to shareholders with strong third-quarter financial results and saw its stock price rise by nearly 8 percent to $106.85 a share.

**Results Beat Wall Street Expectations**
LinkedIn’s revenue for the third quarter was $252.0 million (£156.6 million), an increase of 81 percent compared to the $139.5 million (£86.7 million) reported in Q3 2011 and beat analysts’ expectations of $244.2 million (£151.7 million). Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) amounted to $56 million (£34.8 million), or 22 percent of revenue – an increase of $1.3 million (£807,804) from last year’s EBITDA for the same period. GAAP diluted earnings per share was $0.02 (£0.0124).

“LinkedIn had a strong third quarter with all of our key operating and financial metrics showing solid growth,” said Jeff Weiner, CEO of LinkedIn. “The last few months mark the most significant period of product development in the company’s history. This accelerated pace of innovation is fundamental to our goal of driving greater engagement on the LinkedIn platform.”

The Talent Solutions division of the company accounted for the largest share of the revenue – $138.4 million (£86 million), a year-on-year increase of 95 percent. Marketing Solutions products totalled $64 million (£40 million), 60 percent higher compared to the third quarter of 2011. Finally, Premium Subscriptions delivered the lowest revenue of $49.6 million (£30.8 million) but still showed significant growth of 74 percent from last year.

“Increased member activity led to sustained growth across our talent, marketing, and premium product lines, resulting in record levels of adjusted EBITDA as well as record operating and free cash flow,” said Steve Sordello, CFO of LinkedIn.
The company revised its expected revenue range upwards to $939-$944 million (£579-£586 million) from the prior range of $915-$925 million (£568-£574 million). Adjusted EBITDA was also forecasted higher at $202-$204 million (£125-£126.7 million) from $185-$190 million (£115-£118 million).

**LinkedIn’s Business Model**
LinkedIn and Facebook (NASDAQ:FB) are often grouped together because they are both considered “social networks” but the truth is the two companies have adopted very different business models. Facebook has to rely on a brand new kind of social advertising to monetize its user-base, while LinkedIn’s revenue comes mainly from monthly and annual contracts with employers, which is a sales model that investors are familiar with.
!m[The Professional Social Network Provides a Reliable Business Model and Eyes Further Growth](/uploads/story/710/thumbs/pic1_inline.png)In the last month the professional social network added a number of features including notifications that alert users of new content on the site and the ability to subscribe to well-known people and follow their updates. “The last few months mark the most significant period of product development in the company’s history,” boasted Mr Weiner.
The company also redesigned and simplified its homepage and in return saw a 60 percent traffic increase in the third quarter. The vice-president of talent Steve Cadigan said the increased engagement and interactivity of the LinkedIn platform has already fed into higher numbers of premium subscriptions.
**Investing in LinkedIn… Why not ETFs?**
The MarketWatch ran an article pointing out that Facebook has been appearing in a number of exchange traded funds (ETFs), while LinkedIn is prominent in only two or three.
One of these funds is the First Trust Dow Jones Internet Index Fund, which manages more than $486.5 million (£302.3 million) in assets, and is the largest ETF to offer exposure to both Facebook and LinkedIn. The professional social network has a weight of 2.77 percent in the fund just behind Netflix’s and ahead of Expedia’s weights.
Another fund is the often overlooked SPDR Morgan Stanley Technology ETF, which is up 11 percent so far this year and since 2000 has outperformed the far larger Technology Select Sector SPDR by some 500 basis points. LinkedIn is the second-largest holding of the fund and has a greater weight than stocks of many tech giants including Apple, Amazon and eBay.
An ETF that truly places emphasis on LinkedIn’s stock performance is the Global X Social Media Index ETF. In it LinkedIn’s weight is almost 12 percent or nearly double the weight of Facebook. In the past three months this fund’s price went up by 5.7 percent, LinkedIn’s stock by 11.7 percent and Facebook by 1.6 percent.
Investors who are uneasy with putting their money into a single stock may find that ETFs provide a nice option to diversifying their portfolio.

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