Rapid Subscriber Growth Keeps LinkedIn’s Stock at Frothy Levels
The greater visibility and numerous product upgrades have certainly helped LinkedIn (NYSE:LNKD) in keeping user adoption high with its members growing to over 130 million by the end of Q3 2011. [1] While this growth certainly comes at the expense of high marketing costs, we believe that LinkedIn should keep this expanding subscriber base engaged with its product initiatives. LinkedIn competes in the online job search market with companies like Monster (NYSE:MWW) and Craigslist.
See our complete stock analysis for LinkedIn’s stock here
User Engagement Should Retain Subscribers
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The 60%+ YoY subscriber growth is primarily attributable to a much higher investment in marketing campaigns, which have clearly helped LinkedIn getting much more exposure. A prime example is LinkedIn’s active participation in the American Jobs Act, which would have played its part in both increasing user base as well as lending more credibility to the company.
While rapid expansion might not be the best solution for all companies, LinkedIn has shown a strong record this quarter of introducing newer and simpler features such as the “Apply with LinkedIn” feature and “Company Status Updates“. Consequently, we don’t expect user engagement to suffer as a result of the fast growth in the company’s subscriber base, as LinkedIn should keep both users and employers busy with new products in the offing. At the end of the day, competitors have to be on their toes as the company keeps capturing a larger share of the recruitment market.
We have a revised price estimate of $43 for LinkedIn’s stock, which is well below the current market price. The revision has come on account of higher estimates to LinkedIn’s revenue forecasts and a change in the company’s net cash/debt position. Refer to our article Why LinkedIn’s Fundamentals Don’t Support the Market Price on why we think the market is getting ahead of itself on the company.
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