LinkedIn Looks to Hitch a Ride from Mobile Ads in 2012
After posting a strong results in 2011 with 60% subscriber growth and a 139% growth in its corporate clients, [1] LinkedIn (NYSE:LNKD) is steadily becoming a force of its own in the social media space and a threat to traditional players in the online job search market like Monster (NYSE:MWW). With the company now planning to launch advertisements on mobile as well, [2] we expect LinkedIn to focus on making improvements to its tablet and smartphone apps for 2012.
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See our complete stock analysis for LinkedIn’s stock here
Marketing Costs Should See a Decline
The major cost element for LinkedIn in 2011 was its sales and marketing costs, which saw a jump from around 24% to 30% of the company’s net revenues from 2010 to 2011 respectively. This was primarily attributable to LinkedIn’s aggressive business development initiatives, as the company engaged with with various partners to promote its new product offerings like the “Apply with LinkedIn” feature.
As the company prepares to enter the mobile ad arena in 2012, we expect these costs to rise in absolute terms. However, LinkedIn’s products launched in 2011 are expected to pay-off in terms of increased user subscription and monthly page views for 2012. As a result, we believe that the net effect will be that the company’s collective selling, general and administrative (SG&A) costs will decline as a percentage of revenue.
We have an updated price estimate of $39 for LinkedIn’s stock, which is well below the current market price. We have made the update based on changes in forecasts for LinkedIn’s revenues and margins, as well as a change to the company’s net cash/debt position. Refer to our article Why LinkedIn’s Fundamentals Don’t Support the Market Price on why we think the market is getting ahead of itself on the company.
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