LinkedIn (NASDAQ:LNKD) recently made a decision to open its platform to users over age 13 in a bid to maintain its subscriber growth momentum.  With this move, the company intends to tap into the school and college going segment which should help students get a head start in their careers. It also launched ‘university pages’, which we believe will be similar to company pages. About 200 educational institutions have already signed up, including some prominent names such as NYU and INSEAD.
Should investors be excited about this development? The answer is yes and no.
While extending its reach to a younger demographic will help LinkedIn develop brand loyalty from an early age, it may find it hard to monetize this customer segment. We believe that the company will primarily rely on advertisements as most teens tend to depend on their parents for expenses, and may not sign up for premium accounts. However, there is an opportunity to charge educational institutions to help them reach prospective candidates and market themselves better.
How Many Users Can LinkedIn Target?
LinkedIn is banking on the expectation that teenagers will benefit from its platform as they apply to colleges and universities. Students who want to plan ahead for their careers can take advantage of LinkedIn’s university pages to know more about the course details, latest developments, and connect with alumni and professors to make better decisions. They can also benefit from LinkedIn’s vast flow of information regarding career options to better plan their future.
Although the company is still gaining subscribers at a brisk pace, the growth has slowed over the last few quarters. Expanding to a younger demographic will help it sustain subscriber growth, which may be necessary to support its extremely high market valuation. According to U.S. Census Bureau data, individuals between ages 5 and 18 accounted for 17.1% of the U.S. population in 2012.  Additionally, about 20.2% of the U.S. population was under 14 years of age in 2011.  Using these figures, we get a rough estimate of 3.1% for individuals with ages between 14 and 18. Therefore, we make an assumption that teens between ages 13 and 18 account for over 4.1% of the U.S. population. This gives close to 12-13 million individuals, and this is the market that LinkedIn plans to target in the U.S. with its recent move. However, given that 80% of LinkedIn’s users are international, the overall target user base could be somewhere around 65 million. Going forward, this figure will grow rapidly driven by increasing adoption of Internet and growing literacy rates in emerging markets, as well as a higher number of universities and colleges.
How May LinkedIn Monetize This?
Ads & Marketing – This is likely to be LinkedIn’s primary mode of monetization from the younger demographic as they are unlikely to pay for premium accounts. Ads & marketing constitutes roughly 30% of the company’s value and generated close to $258 million in revenues in 2012. We forecast LinkedIn’s average unique visitors to increase from 184 million in 2013 to almost 480 million in the next six years. LinkedIn is making efforts to improve user engagement with features such as the ability to add photos and videos, LinkedIn Contacts, channels, influencer program, likes, automated updates, ability to follow thought leaders and endorsements. These features make it easier for the users to streamline content and more efficiently search for relevant jobs, educational courses, institutions, candidates and customers. LinkedIn’s utility for professionals and corporates is drawing new members every quarter and fueling the company’s international growth. The current world population stands at over 7 billion and the global workforce is 3+ billion in size. These figures will only grow, and the inclusion of the younger demographic will ensure that LinkedIn reaches 500 million unique visitors, assuming that it maintains its competitive advantage. There is still a huge scope of expanding in Latin America and Asia-Pacific as the number of Internet users in these markets are likely to grow rapidly over the next few years.
Internship Recruitment & University Promotion - LinkedIn can potentially make money by charging corporates for internship related job postings and specific tools to reach out to younger students who may be interested in internships. In addition, it can also charge universities who intend to reach out to the best candidates based on their academic and extra curricular performance in school.
Our price estimate for LinkedIn stands at $133, implying a discount of about 45% to the market price.Notes:
- LinkedIn Growing Up: Opens Up To High School Students Over 13, Launches Dedicated Pages For Universities Worldwide, TechCrunch, Aug 19 2013 [↩]
- U.S. Census Bureau [↩] [↩]