Growing Small Businesses Can Boost LinkedIn’s Top-Line But Stock is Still Rich

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Trefis
LNKD: LinkedIn logo
LNKD
LinkedIn

LinkedIn (NYSE:LNKD) is working in the right direction as its number of registered users is increasing and it continues to benefit from several product initiatives it has launched in past several months. The company continues to target smaller business customers that can leverage from growing the user base to attract talent as well as use LinkedIn as an effective tool for branding and other promotional activities. As the number of small business customers increases, we expect revenue per business customer will decline in the medium term since LinkedIn will receive lower fees from the smaller customers. However, this can be offset by more job postings with higher number of clients, and this should grow its top-line further. LinkedIn mainly competes against Monster (NYSE:MWW) and Craigslist in the online job search market.

Our complete analysis for LinkedIn’s stock is here.

Opportunity to Increase Customer Fees with More Users

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The number of registered users on LinkedIn grew to more than 130 million by the end of Q3 2011 at a growth rate of 60% y-0-y, attributable to greater visibility and user engagement tools developed by the company. With a rich and diverse user base, companies can reach out to a wider group and attract the best talent. This gives LinkedIn an opportunity to charge more as the number of registered members increase in the long term.

Weaker Economy, Unemployment Favors LinkedIn

Despite the persisting unemployment rate of around 9%, there are still 3.4 million jobs available as of September 2011, according to Bureau of Labor Statistics. [1]

This situation favors LinkedIn that offers a unique platform for professional networking where employers and potential employees can interact and communicate. The company also saw increased visibility when it hosted President Obama’s ambitious $447 billion Jobs Act back in September. (Read: Will the American Jobs Act Boost LinkedIn’s Growth?)

LinkedIn is trying to attract more small businesses in order to increase its customer base as well as promote more job growth. Though LinkedIn will earn lower fees from these small businesses, higher number of customers should increase the total number of job postings, which should in turn boost its overall revenues.

While we estimate LinkedIn’s average revenue per business customer will increase from $21.5 K in 2012 to $24.4 K by the end of our forecast period, Trefis members expect an increase from $23.2 K to $29.3 K during the same period. The member estimates imply an upside of 5% to the Trefis price estimate for LinkedIn’s stock.

We currently have a Trefis price estimate of $42.87 for LinkedIn’s stock, about 70% below the current market price.

Understand How a Company’s Products Impact its Stock Price at Trefis

Notes:
  1. Number of jobs available in the U.S. grows, Chicago Tribune, Nov 8, 2011 []