Trefis launched coverage on LinkedIn (NYSE:LNKD) earlier today with a price estimate of $30. However, shares opened trading at $83 and quickly raced past $100 within the first couple hours. LinkedIn is a business-oriented social networking site where professionals can connect with each other to explore job and career opportunities. The company generates its value through three business segments: (1) selling recruitment services to employers, (2) selling premium advertising and (3) selling premium subscriptions to employers and users. LinkedIn competes with Monster (NYSE:MWW) in the recruitment services market, as well as social networking portals like Facebook and Twitter. The company also faces competition from Google (NASDAQ:GOOG) and Yahoo (NASDAQ:YHOO) in the online advertising market.
So what might drive a higher valuation for LinkedIn? Below we take a look at one such scenario.
Number of Corporate Clients on the Rise
LinkedIn offers several recruitment solutions to its corporate clients. These solutions include simple job listings services as well as advanced recruitment tools like LinkedIn Recruiter, Talent Direct, Custom Company Profiles and Jobs Network. These options help corporations to identify the best matches from an extremely large pool of qualified candidates.
The average number of corporate clients for LinkedIn has increased rapidly over the past few years from 450 in 2008 to more than 2,700 in 2010. We expect this number to continue to grow to around 30,000 by the end of our forecast period, an average annual growth rate of about 40%. But there is room for upside. In 2010, LinkedIn recorded 140% annual growth in the number of corporate clients. So a scenario where average annual growth rate hits 50% (instead of the 40% we project) is reasonable. Notably, this scenario would imply 25% upside to our $30 price estimate, with the number of corporate clients reaching 45,000 by the end of our forecast period.
