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Investment Overview for LinkedIn (NYSE:LNKD)
Below we highlight key drivers of LinkedIn's value that present opportunities for upside or downside to the current Trefis price estimate for LinkedIn.
Recruitment Services and Job Listings
- Average Revenue per Corporate & Business Customer: LinkedIn charges companies for buying advanced solutions such as LinkedIn recruiter, Talent Direct, Custom Company Profiles and Jobs Network. We expect the average revenue per client company for LinkedIn to increase from around $23,200 in 2013 to around $34,300 by the end of our forecast period. We believe that many of the incremental corporate customers for LinkedIn are likely to be small customers as many of the large companies already use LinkedIn. These customers are then likely to spend less, which means the growth in average fee could be moderate. However, as the number of registered members on LinkedIn increases, it will benefit corporates by allowing them to capture large talent pool for job offerings. This means that the average fee could actually go up. In a scenario where the average fee increases to $44,000 by the end of Trefis forecast period, there could be an upside of around 10% to our price estimate for LinkedIn.
Ads & Marketing
- LinkedIn Monthly Unique Visitors: LinkedIn's average monthly unique visitors have increased from around 19 million in 2008 to 182 million in 2013. This metric more than halved in 2014 as the company started reporting its own metrics, instead of those estimated by ComScore. We forecast this figure to reach close to 161 million by the end of our forecast period. The unique visitors growth was more during the recessionary period and beyond. This is because the unemployment rate increased during recession and its after-effect were felt even after recession was over. Hence the unique visitors growth rate could be slower going forward, as the economy recovers leading to lower unemployment rate. However, if the growth continues and the number of unique visitors increase to 250 million, there could be an upside of around 10% to our price estimate for LinkedIn.
For additional details, select a driver above or select a division from the interactive Trefis split for LinkedIn at the top of the page.
LinkedIn is a business-oriented social networking site where professionals can connect with each other to explore job and career opportunities. The company makes money primarily in three ways: (1) selling recruitment services to employers, (2) selling premium advertising and (3) selling premium subscriptions to employers and users.
The company reports three net revenue segments listed below:
- Hiring Solutions
- Marketing Solutions
- Premium Subscriptions
These 3 segments have been mapped into the Trefis structure as Recruitment Services & Job Listings, Ads & Marketing and Premium Account Subscriptions respectively.
We believe that recruitment services that targets employers constitutes for the largest portion of LinkedIn's value for the following reasons:
Higher Revenues From A Small Number Of Large Employers
We estimate that LinkedIn charged over 24,444 large employers an average of over $23,200 annually (during 2013) for access to the its database of passive candidates. In comparison, premium account subscriptions for individuals and small businesses generate revenue of about $240 per account annually. This means that LinkedIn's annual revenue from a large employer customer is almost 100x the revenue from one premium subscription account.
Fees Charged to Large Employers Increasing while Average Premium Subscription Pricing Declines
We expect the fees that LinkedIn charges large employers to increase over the Trefis forecast period as a growing LinkedIn user base makes LinkedIn platform even more attractive to employers. In comparison, we expect the average premium subscription amount to decline as the mix of premium subscriptions shifts towards lower cost subscriptions driven in part by more international users.
Like any other recruitment service, LinkedIn's revenues are strongly tied to the state of the job market, measured by the unemployment rate. For example, the unemployment rate in the U.S. stood at around 6.6% during January 2014, according to the U.S. Bureau of Labor Statistics. Unemployment rate is a double edged sword for LinkedIn. A low unemployment rate suggests that the job market is booming, and many users and employers can use LinkedIn as a tool for seeking better employment opportunities. At the same time, it also means that jobs are easy to come by, and users may not need to spend as much time on sites like LinkedIn. Similarly, high unemployment rates can initiate a surge in usage for an unemployed user base who recently lost their jobs. But a high unemployment rate also indicates that employers might be cutting costs and laying off employees, which could lead to a reduction in hiring on forums like LinkedIn.
Focus On Mobile Platform
Like everyone else, LinkedIn is making efforts to capture the growth in the mobile market. The mobile platform recently accounted for 47% of the total traffic to LinkedIn as compared to around 40% in Q4 2013. The number of page views on mobile grew faster than just for desktop. To bolster its mobile offering, LinkedIn acquired the newsreader app Pulse. With this acquisition, the company intends to boost content offering on its app and website to increase user engagement and improve its targeted search.
During 2014, it launched an app on iOS called ‘connected’, which makes it easier for LinkedIn members to send updates and opportunities in a timely manner to other members in their network, thus leading to higher engagement on the platform. Moreover, the company also launched a ‘LinkedIn Job Search’ App for the iPhone in June'14 to leverage a trend towards increased job interactions taking place on the mobile platform. All these efforts are resulting in higher engagement on the mobile platform.
Increasing Proportion Of Revenues From Hiring Solutions
Revenues from Hiring Solutions (Recruitment Services and Job Listings) business as % of total revenues has steadily increased in the last few years, growing from 22% in 2008 to 56% in 2013. Meanwhile, the figure for Premium Subscriptions business has declined from 45% to 20% during the same period. We expect the Talent Solutions segment to continue to be driven by new customer additions, price hikes, and sales workforce increases in the future.
Innovative Recruitment Products To Boost Revenues
LinkedIn has launched advanced recruitment solutions such as LinkedIn Recruiter, LinkedIn company profiles, and LinkedIn organizer. These products have adaptive features that help hiring managers target users based on profile information, including experience, industry and location. Such products will help LinkedIn increase the number of client companies and the revenues charged per client company.
Similarly, Monster is ramping up its efforts to improve resume search by incorporating intelligent search technology, Semantic 6Sense, into its next generation of products for both employers and job seekers. The search technology is designed to be smarter than traditional keyword search by incorporating more weighting factors for searches.
Launch Of Publishing Platform Will Drive Engagement
The recent launch of the publishing platform, which was available to only 100 million members as of Q3 2014, is also contributing to rise in engagement levels. The number of weekly long-form posts reached 40,000 in Q3, and once this platform is to opened to all members, it will further drive traffic on the site.
Rapid Rise In Job Listings
LinkedIn is raising the number of job listings on its platform to enhance its value proposition. Earlier in 2014, it decided to aggregate job listings from other sites, in a feature called ‘Limited Listings’. Until recently, it carried job openings only from U.S companies, but now it has added jobs from throughout the world. Consequently, the number of job listings has increased from 1 million at the end of Q2 to 2 million in Q3 2014. We think this strategy will drive member additions in the coming quarters as it will pull active job seekers to the platform.
LinkedIn Is Expanding Across Geographies And Demographic Groups
Expansion across geographies and demographic groups are other initiatives that LinkedIn is taking to propel its growth.
Since it a launched a simplified Chinese site at the beginning of 2014 - LinkedIn has seen millions of member additions from the China making it one of the key growth markets for the company. The share of international revenues in overall revenue increased from 38% in Q2 2013 to 40% in Q2 2014, and we expect this proportion to rise in the future as well.
Students are also increasingly being targeted as LinkedIn launched new tools in 2014 to aid college students and university aspirants in choosing universities, colleges and courses.
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on: DCF Methodology
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