LinkedIn Could Deliver Another Strong Quarter In Q4

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LinkedIn

With LinkedIn’s (NASDAQ:LNKD) stock rising by more than 30% over the last six months, investors will be closely eyeing its fourth quarter results on Thursday, February 5th, to see if the company can keep its growth momentum intact. We expect the company to easily beat its initial guidance of 35% revenue growth (at the high-end) in Q4, as the increase in user engagement and number of customers, along with addition of new targeted ad products,likely contintues to  push up monetization on the platform. LinkedIn’s strategic initiatives contributed to acceleration in user engagement growth during the fourth quarter,  in our view.  These include: the redesign of member profiles, fostering growth in the mobile ecosystem and publisher network, strengthening and increasing jobs listings, and expanding into newer geographies and user demographics  We expect Talent Solutions and Marketing Solutions segments to carry LinkedIn’s earnings during the quarter. However, its ‘Premium Subscriptions’ segment could see its growth falter due to a spurt in free-trials.

Recently reports came out that LinkedIn plans to launch two new products that increase interaction among co-workers. The first product allows colleagues to mail each other (even if they are not connected), and the second product lets company administrators share content with a specific set of employees. [1] We will be interested to learn more about how LinkedIn plans to compete with ‘Facebook At Work’ (a new Facebook tool) with these planned new offerings during the earnings call.

Our $163 price estimate for LinkedIn’s stock, represents near 25% downside to the current market price.

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See our complete analysis for LinkedIn

Member Engagement Will Rise Driven By Several Strategies

User metrics and engagement on LinkedIn platform has consistently risen over the past few quarters.  During the third quarter of 2014, cumulative members grew by 28% to 332 million. In addition, member page views rose by 28%, outpacing growth in unique visiting members which stood at 16%.

LinkedIn has taken several steps to boost member engagement on the platform, and these efforts are showing progress. The company has drastically raised the number of job-listings on its platform, to enhance its value proposition among active job seekers as well as employers. While earlier it was aggregating job listings from other sites and only from U.S companies, it has now started carrying jobs posted across the world. As a result, the number of job listings rose from 1 million at the end of O2 to around 2 million at the end of Q3. We expect solid growth in this figure in the fourth quarter as well, and we expect this to positively impact new member additions over the platform.

Advancement on the mobile platform has also shown promising results for LinkedIn in the recent past. By introducing various standalone apps including Job Search’ and ‘connected’, the company has been able to increase the share of mobile usage in overall traffic from 43% in Q1 to around 50% presently. Its foray into publishing has also gained traction. The publishing platform is now available to around 230 million members, as compared to 100 million members at the end of Q3 (as per latest news). The number of weekly long-form posts reached 40,000 in Q3, and cumulatively, over a million posts have now been published on the platform. [2]

LinkedIn is also branching out to other geographies and demographic groups to fast-track its growth. China is one of the key strategic growth markets for the company, as it has recorded millions of member additions from the country since it a launched a simplified Chinese language site in early 2014. The proportion of international sales in overall revenue rose from 38% in Q3 2013 to 40% in Q3 2014, and we expect this proportion to increase in the coming quarters as well. LinkedIn is also targeting student demographic for gaining new members, since it introduced new tools to help college students and university aspirants in choosing universities, colleges and courses.

Strong Growth Expected Across Talent Solutions And Marketing Solutions Segments

We expect LinkedIn to post strong growth across its ‘Talent Solutions’ and ‘Marketing Solutions’ segments during the fourth quarter. We expect an increase in sales workforce to fuel customer additions and sales with existing customers in the Talent Solutions segment. A price hike in the mid-single digit range for new contracts and renewals that came into effect post January 1, 2015 will bolster LinkedIn’s revenues over the coming quarters.

Results in the ‘Marketing Solutions’ segment will be driven by strong demand for sponsored updates and contribution from the recently acquired Bizo business. However, the ‘Premium Subscriptions’ segment could see some weakness during Q4, as the company has stepped up free trials over the platform. The company had recently revamped its Sales Navigator tool (a subscription service for professionals to identify and target leads), and we are interested to see the early results from this new tool.

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Notes:
  1. Upcoming LinkedIn Products Connect Co-Workers, Re/code, January 13, 2015 []
  2. LinkedIn Publishing Platform Now Accessible To 230 Million Members In All English-Speaking Countries, TechCrunch, January 8, 2015 []