LinkedIn Pre-Earnings: What Factors You Should Be Looking Out For?

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LNKD: LinkedIn logo
LNKD
LinkedIn

Investors will be closely tracking LinkedIn (NASDAQ:LNKD) on Thursday, October 30th, when the company posts its third quarter results, especially since it delivered stellar performance in Q2 which had led to over 10% increase in its stock price. Taking into account the recent investor reaction to earnings announcements by Twitter and Amazon – any slippage against market expectations either on earnings or member metrics side could send LinkedIn’s stock tumbling.

During the third quarter, we expect the company to post around 40% revenue growth with a slight improvement in the adjusted EBITDA margin on a year-over-year basis. Increased user engagement, coupled with new targeted ad products, will push up monetization on the platform. LinkedIn has undertaken various measures to boost member addition, such as redesigning profile pages, growing the mobile ecosystem and publisher network, strengthening jobs listings and foraying into newer geographies. Though we expect these initiatives to fuel member additions, we will closely track member additions and engagement levels during the third quarter, to check how the numbers stack up against these measures. We expect there was strong and broad-based growth during the third quarter across the different segments, namely, Talent Solutions, Marketing Solutions and Premium subscribers.

Our current price estimate for LinkedIn stands at $154, implying a discount of around 25% to the market price.

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See our complete analysis for LinkedIn

LinkedIn Is Focused On Enhancing User Engagement To Increase Value For Marketers

LinkedIn’s member engagement metrics grew by a healthy rate during the second quarter, and exceeded market expectations. Cumulative members rose by 32% annually to 313 million and unique visiting members to LinkedIn rose by 13% to 84 million per month in Q2. [1] Moreover, internal member page-views rose by 22%, outpacing growth in unique members. We believe the company will continue to see increased engagement levels during the third quarter as well.

So what are the factors driving this rise in engagement?

LinkedIn is focused on improving user experience by redesigning member profiles and growing its multi-app portfolio. The company has made user profiles more visually attractive and personalized, allowing members’ key skills and attributes to be readily visible and organized. In other words, it has helped define their identity more effectively. This adds value to recruiters, since they can now better identify suitable candidates through LinkedIn’s search tools.

LinkedIn continues to strengthen its mobile app portfolio to drive adoption for its services. It recently launched an app on iOS called ‘connected’, which makes it easier for LinkedIn members to send updates and opportunities in a timely manner to other members in their network, thus leading to higher engagement on the platform. Moreover, the company also launched a ‘LinkedIn Job Search’ App for the iPhone in June to leverage a trend towards increased job interactions taking place on the mobile platform. While mobile contributed for around 45% of total traffic to LinkedIn in Q2, we expect this share to rise in the future.

The publishing platform, which was available to only 15 million members until Q2, is also contributing to rise in engagement levels. The number of weekly long-form posts surpassed 30,000 in Q2, and once this platform is to opened to all members, it will further drive traffic on the site. The company recently revamped its Sales Navigator tool, which is a subscription service that allows sales professionals to better identify prospects. All in all, these new tools and offerings will help raise LinkedIn’s popularity further driving usage in the long-term.

Increased Job Listings and International Growth Will Drive Demand

Increasing the number of job listings on its platform is a strategic growth priority for LinkedIn. The number of job listings has increased to over 1 million following the company’s decision to aggregate job listings from other sites, in a 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. This step will likely raise LinkedIn’s value proposition and attract more users. Higher user activity will generate more data which will ultimately help recruiters identify suitable candidates. We believe that recruitment services and job listings business accounts for around 50% of LinkedIn’s value, of which one-third comes from job listings alone.

International expansion represents another growth driver for LinkedIn. Around 67% of Linked’s total user base was international in Q2. China is an important growth market for the company – it has become one of the fastest growing markets for LinkedIn since it introduced a simplified Chinese site at the beginning of the year. The share of international revenues in overall revenue increased from 38% in Q2 2013 to 40% in Q2 2014, and we expect this proportion to rise in the future as well.

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