Should Investors Be Concerned About The Security Breach At LinkedIn?

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Recently, LinkedIn (NASDAQ:LNKD)  announced that, as a result of a 2012 hacking attack, data relating to email and password combinations of more than 100 million of its members had been stolen. While the company took immediate steps to invalidate passwords of the impacted accounts, it stated that there is no indication that this incident was the result of a new security breach. Rather it resulted from a previously undetected breach in 2012. The act came to light in a report by Motherboard that a hacker was trying to sell account information, emails and passwords of 117 million LinkedIn users.  While the size of the breach is notable, given that more than 25% of LinkedIn’s 400 million users are impacted, other social networks such as Facebook and Twitter have been impacted by similar security breaches in the past. The company’s stock price did not decline significantly after this news became public, indicating that the market did not panic as a result of it. LinkedIn is trying to attract more corporate accounts to its platform and data security will be a key driver to attract business enterprises. While the current security breach should not concern investors, since it originated in 2012, LinkedIn’s measures to ensure that such incidents are not repeated will be critical for its growth in the future.

Safety Of Accounts And Data Critical To Attract Corporates

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For Q1 2016 LinkedIn posted a 35% year-on-year growth in revenues, driven by a 41% increase in sales of its talent solutions division. Talent Solutions, which comprises hiring and learning, is the most valuable division for the company, accounting for nearly 65% of its revenues.

See our complete analysis for LinkedIn

Recruiters, using the company’s platform to hire candidates and members who post their profiles on the network, are key drivers to grow the revenues of this division. The security of member’s accounts is critical for them to post their information on the platform.  Corporate recruiters hiring through this platform also need to be assured  of confidentiality and data safety. Data breaches will impact the confidence of both these entities, thus impacting revenues of the company.

However, LinkedIn has been proactive in handling the current incident, and the company moved swiftly to invalidate the accounts impacted by the breach. The company stated that these were the accounts which had not changed their passwords since the 2012 breach, implying that the users are also partially at fault for this data release. LinkedIn is also encouraging members to use strong passwords and its advanced protection tools such as email challenges and dual factor authentication, which were introduced after the 2012 breach.

While data breaches are too common for social networks, the number of LinkedIn users involved is notable and indicates a security weakness. That said, it dates to 2012 and remediation occurred some time ago.  The company took immediate steps to resolve the issue and notify the affected accounts.  Hence, investors should not be overly concerned by this past security breach at LinkedIn.

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