LinkedIn Surprises As Feature Enhancements Drive Membership Growth

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LNKD: LinkedIn logo
LNKD
LinkedIn

LinkedIn‘s  (NASDAQ:LNKD) stock jumped more than 12% in the after-hours trading following the company’s Q2 2014 earnings announcement. The company beat analyst estimates on the back of uptick in member additions resulting from launch of new and engaging features. The spur in user activity drove the growth in overall revenues. Linked gained 17 million new members in the second quarter, compared to a gain of 16 million a year ago. This is impressive considering the company’s user base growth had slowed down significantly in recent quarters. Additionally, adjusted EBITDA and revenues climbed significantly as the new targeted ad products continued to attract marketing dollars and the revamp of the platform influenced more users to sign up for paid membership. Overall the results were impressive, and showcased that LinkedIn certainly has the room for further growth, and capability to drive it.

We are in the process of updating our price estimate for LinkedIn in light of recent earnings, and will have an update ready soon. Our current price estimate for LinkedIn stands at $134, implying a discount of around 35% to the market price.

See our complete analysis for LinkedIn

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Why User Engagement On LinkedIn Is Increasing

LinkedIn has made numerous feature updates and enhancements this year, which appears to be the primary reason behind the uptick in member additions and sustenance in revenue growth.  One of the key changes that LinkedIn made is redesigning the profiles. The company has made efforts to make the profiles more visually attractive and personalized, so that a member’s key skills and attributes are readily visible and organized. In other words, it has helped define their identity more effectively. This is of great interest to recruiters and will help them better identify suitable candidates through LinkedIn’s search tools.

LinkedIn is also growing its multi-app portfolio and has launched an app on iOS called ‘connected’. It makes it easy for LinkedIn members to deliver updates and opportunities in a timely manner to the members in their network, thus leading to higher and more meaningful engagement. The publishing platform, that’s still available to a limited number of members, is seeing some traction. LinkedIn stated that the the number of weekly long-form posts have surpassed 30,000 recently. [1] The platform will soon be available to every LinkedIn member, and will help them market their knowledge and skills.  The company also revamped its Sales Navigator tool, which will be launched as a subscription service that allows sales professionals to better  identify prospects. All in all, the company continues to enrich and monetize its offering.

Increasing Job Listings Turned Out To Be A Good Move

LinkedIn’s standalone job search mobile app has played a role in spurring user activity on the platform, which tends to be one of the key metrics that the stock trades on. Mobile accounted for 40% of total job views in Q2 2014, compared to just 25% a year ago. [1] Users who are actively using the new app tend to view about 15 jobs per week. Increasing the number of job listings on its platform is one of the priorities of LinkedIn. This is an acknowledgement of the fact that while the company has disrupted the traditional hiring business, job listings are not going away. We estimate that recruitment services and job listings business constitutes roughly 50% of LinkedIn’s value, of which one third comes from job listings alone.

As expected, the number of job listings have skyrocketed to more than 1 million following the company’s recent steps. In early June, LinkedIn announced its decision to aggregate job listings from other sites, thus creating a new feature called Limited Listings. This feature is different from LinkedIn Jobs because the new aggregated jobs will be visible only to those candidates who search for them, thus specifically targeting active candidates. While the company may not earn additional revenue from Limited Listings, the move will definitely improve its value proposition and attract more users. Higher user activity will generate more data which will ultimately help recruiters identify suitable candidates. That’s the whole value proposition of LinkedIn’s platform which it intends to leverage to dominate global hiring market.

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Notes:
  1. LinkedIn’s Q2 2014 Earnings Transcript [] []