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Investment Overview for LinkedIn (NYSE:LNKD)
Share Count Calculation & Option Dilution
We have estimated the diluted share count to be around 116 million. This includes 102 million shares of Class A and Class B common stock outstanding after the IPO and the secondary offering, and roughly 13.4 million shares to account for option dilution. The company has about 14.8 million options at a weighted-average exercise price of $9.35 per share, and roughly 1.1 million restricted stock units. This data is available in the company's latest 10-K filing with the SEC. Without including the option dilution, the Trefis price
estimate for LinkedIn stock would be around 13% higher than the present price estimate.
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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 from LinkedIn, such as LinkedIn recruiter, Talent Direct, Custom Company Profiles and Jobs Network. We expect the average revenue per client company for LinkedIn to decline in the short term and increase slightly in the long term from around $24,250 in 2011 to around $27,000 by the end of Trefis 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 average fee could come down instead of going up. However, as the number of registered members on LinkedIn increases, it will benefit corporates by allowing them capture large talent pool for job offerings. This means that the average fee could actually go up in the short term instead of going down. In the scenario where the average fees increases to $36,000 by the end of Trefis forecast period, there could be an upside of around 10% to ${trefisprice}.
Ads & Marketing
- LinkedIn Monthly Unique Visitors: LinkedIn's average monthly unique visitors has increased from around 31 million in 2009 to 84 million in 2011, and we estimate that it could continue to increase to around 290 million by the end of the Trefis 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 should slow down going forward, as the economy recovers leading to lower unemployment rate. However, if the growth continues, there could be an upside of around 10% to the Trefis price estimate for LinkedIn's stock if the number of unique visitors were to increase to around 380 million by the end of Trefis forecast period.
- Page views per LinkedIn visitor: LinkedIn's page views per unique visitor has increased from around 24 per month in 2009 to 29 per month in 2011. We estimate that it could continue to increase to around 34 per month by the end of the Trefis forecast period. We believe that LinkedIn will continue to bring out features which will increase user engagement. For example, LinkedIn Polls functionality was brought so that if user answers these surveys, it will help increase page views per user. However, in the scenario in which the page views per user number reduces to around 26 by the end of the Trefis forecast period, there could be a downside of around 5% to the Trefis price estimate for LinkedIn's stock.
For additional details, select a driver above or select a division from the interactive Trefis split for LinkedIn at the top of the page.
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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.
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We believe that recruitment services targeting employers constitute the largest part of LinkedIn's value for the following reasons:
Higher Revenues from a Small Number of Large Employers
We estimate that LinkedIn currently charges about 7,500 large employers an average of $24,250 annually for access to the LinkedIn database of passive candidates. In comparison, premium account subscriptions for individuals and small businesses generate revenue of about $245 per account annually. We estimate that there are currently over 430,000 premium subscribers representing around 0.34% of LinkedIn's +145 million registered users (as of Dec 2011). 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 the LinkedIn platform even more attractive to employers. In comparison, we expect the average premium subscription amount to decline over the forecast period as the mix of premium subscriptions shifts towards lower cost subscriptions driven in part by more international users.
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Unemployment Rate
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. stands at around 8.5% as of 11th January 2012, 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.
Increased product development in the mobile space
LinkedIn has taken significant steps in the mobile space to keep its user engagement high. For 2011, LinkedIn's mobile page views gave grown by more than 400%, and in August 2011 the professional networking site introduced major updates to its apps on Android, iOS and HTML5 as well. These new mobile applications are claimed to be upto 2 to 10 times faster than before, providing a much better experience to potential candidates. We expect LinkedIn to continue to upgrade its mobile platforms in future to enable further ease-of-use and simplicity, especially and smartphone and tablet usage continues to rise.
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 from 22% in 2008 to 50% in 2011. Meanwhile, revenue proportion from Premium Subscriptions business has declined from 45% to 20% during the same period.
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.
Display of white papers as banner ads will be a potential revenue generator
LinkedIn allows researchers and companies to advertise white papers as banner advertisements on LinkedIn pages. After clicking on these ads and filling up forms related to industry, profession and other data, users can access white papers free of cost. LinkedIn charges these companies based on the number of users who sign up for the white papers. Trefis estimates that white papers ads will increase LinkedIn's advertising revenues.
Growth in the number of registered users to push up administrative expenses
The amount of data transmitted is expected to grow driven by more LinkedIn applications and an increasing number of photos / videos per user.
Trefis Forecast Rationale for Average Number of LinkedIn Corporate & Business Customers
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${forecast} is the average number of corporations that have subscribed to the LinkedIn corporate solutions in a year. Companies like Juniper Networks, eBay, Logitech, Trimble navigation have been using recruitment solutions by LinkedIn.
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${forecast} increased from around 450 in 2008 to 6,550 in 2011. Going forward, we expect ${forecast} to continue increasing, albeit at a moderate pace.
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Trefis considered the following factors for its forecast:
Supporting factors:
- New product offerings to drive future growth
- LinkedIn Recruiter is the company's flagship hiring solutions product that enables enterprises to find, contact and hire highly qualified active and passive candidates. It includes ability to search and view every profile on LinkedIn.
- LinkedIn Referral Engine is another tool that enables enterprises and professional organizations to leverage the networks of their employees to find qualified candidates for open positions.
- LinkedIn Recruitment Media is another tool that enables enterprises to target career-related messaging to qualified candidates in the form of advertisements, videos, or emails.
- US Jobs Act May Attract new Employers
- The $447 billion US Jobs Act is an initiative by the Obama administration to help small businesses find the right talent. Despite an unemployment rate of more than 8.5% as of Nov 2011, there are still over 3 million jobs available in the U.S.
- The Jobs Act aims to close this gap, and LinkedIn may have a big role to play in the same. The company has already been associated with Townhall meetings on the same, and it could see an upside to its corporate customers, as more small businesses sign up to LinkedIn to find suitable candidates.
Mitigating factors:
- Sustaining growth rate becomes difficult with increasing base
- ${forecast} grew from 450 in 2008 to 2,730 in 2010 at an average annual growth rate of more than 100%. Maintaining such high levels of growth rate becomes difficult as the installed base of client companies increases.
Back to Company OverviewHow 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:
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