During its last earnings, LinkedIn (NYSE:LNKD) stated that it has been experimenting with a new feature, Sales Navigator, and the initial results have been promising. Sales Navigator can be a useful product for LinkedIn as it helps sales professionals in better targeting customers, building relationships and marketing their products. The search includes some advanced features that are not available to others and professionals can establish alerts based on these. The essence is that it will help companies in selling their products to the right individuals based on their preferences, age, location, etc. Sales Navigator can also be integrated with customer relationship management (CRM) software that companies already use, and that gives it a great advantage and appeal.
Sales Navigator is roughly priced at around $40 per month, implying annual revenues of roughly $500 per customer. To understand the overall revenue opportunity, we have to understand how many customers can LinkedIn sign up for this feature?
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We estimate that LinkedIn’s average number of premium subscriptions (average at the year beginning and the year end) for 2012 is trending towards 800,000. In addition to this, we estimate the total number of job listings in 2012 will be close to 1.6 million and the average number of corporate clients will be 12,300. These figures give insight into LinkedIn’s ability to monetize its platform and the number of people who are actually paying to use the service.
Sales Navigator can accelerate premium subscriptions depending on adoption and utility. If we assume that LinkedIn can get close to 100,000 customers signed up for Sales Navigator in next 2-3 years, it can add an incremental $50 million in annual revenues. Furthermore, if the company can garner 1 million such customers by the end of our forecast period, it can lead to $500 million in additional revenues.
But this will come at a cost and the company will need to push its R&D and sales team to acquire these customers and make its Sales Navigator service indispensable. Therefore, these incremental revenues cannot be simply treated as incremental profits. Such success can add 10% to 20% to our current price estimate depending on how much operating leverage LinkedIn gets from it.
Despite this opportunity, we believe that LinkedIn remains overvalued. Refer to this article to know why: LinkedIn’s Growth Is Highly Overvalued And Competitive Risks Ignored.
Our price estimate for LinkedIn stands at $59, implying a 50% discount to the market price.