LinkedIn (NYSE:LNKD) will report its Q1 2012 earnings on May 3. It had a great year in 2011, with 60% growth in subscriber numbers and 139% growth in corporate clients. We expect its growth to continue in 2012, albeit at a slower rate, as it strengthens its position in the social media where it is up against Facebook and Google (NASDAQ:GOOG) as well as the job search space where it competes with Monster (NYSE:MWW). Going forward, we expect to continue to see a steady increase in registered users as well as monthly unique visitors, which will drive LinkedIn’s premium subscription and advertising revenue. The higher number of profiles on its service will also help it increase its recruitment services revenue.
User growth to continue; will be driven by international and mobile
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We expect to see LinkedIn’s user numbers to continue to increase in the coming years. Since all of LinkedIn’s businesses are linked to its user base in one way or another, any increase in its user base will drive page views, higher subscription revenue and also attract more corporate customers wanting to access the growing user base.
It had an average of around 120 million registered members in 2011. We expect it to increase to around 500 million by the end of the forecast period, as LinkedIn focuses on users in global markets and leverages the trend of increasing smartphone penetration to drive user growth as well as engagement on its platform. Mobile advertising could contribute to a much greater portion of its overall ads and marketing revenue, going forward.
LinkedIn needs to keep marketing costs in check
While the growth story is encouraging, LinkedIn has seen a significant increase in its marketing costs in 2011. Its SG&A costs jumped in 2011 due to its aggressive business development initiatives. However, we expect LinkedIn to rein in these costs as a percentage of its gross profits, going forward, as its revenues increase faster than expenses. If it fails to do so, there might be a significant downside to its value estimate, which is already much lower than its market price.
We currently have a price estimate of $43 for LinkedIn’s stock, which is well below the current market price. Recruitment services, ads and premium subscriptions account for most of its revenue.