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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 moderated. 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 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 should slow down 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 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 over 24,444 large employers an average of over $23,200 annually 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. stands at around 6.6% as of 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. In the first quarter of 2013, mobile platform accounted for 30% of the total unique visitors versus 19% a year ago. This figure rose to more than 40% in Q4 2013. The number of page views including 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.
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.
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.
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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