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Investment Overview for LinkedIn (NYSE:LNKD)
Below we highlight key drivers of LinkedIn's value that present opportunities for upside or downside to the current Trefis price estimate for LinkedIn.
- Average Revenue per Corporate & Business Customer: LinkedIn charges companies for buying advanced solutions such as LinkedIn recruiter, Talent Direct, Custom Company Profiles and Jobs Network. We expect the average revenue per client company for LinkedIn to increase from around $46,400 in 2015 to around $54,400 by the end of our forecast period. We believe that many of the incremental corporate customers for LinkedIn are likely to be small customers as many of the large companies already use LinkedIn. These customers are then likely to spend less, which means the growth in average fee could be moderate. However, as the number of registered members on LinkedIn increases, it will benefit corporates by allowing them to capture large talent pool for job offerings. This means that the average fee could actually go up. In a scenario where the average fee increases to $65,000 by the end of Trefis forecast period, there could be an upside of around 12% to our price estimate for LinkedIn.
Ads & Marketing
- LinkedIn Monthly Unique Visitors: LinkedIn's average monthly unique visitors have increased from around 73 million in 2013 to 98.5 million in 2015. We forecast this figure to reach close to 166 million by the end of our forecast period. This will be driven by growing value proposition of the LinkedIn platform as well as due to increasing popularity of its mobile apps. However, if the growth continues and the number of unique visitors increase to 250 million, there could be an upside of around 10% to our price estimate for LinkedIn.
For additional details, select a driver above or select a division from the interactive Trefis split for LinkedIn at the top of the page.
LinkedIn is a business-oriented social networking site where professionals can connect with each other to explore job and career opportunities. The company makes money primarily in three ways: (1) selling recruitment services to employers, (2) selling premium advertising and (3) selling premium subscriptions to employers and users.
The company reports three net revenue segments listed below:
- Talent Solutions (hiring and learning & development)
- Marketing Solutions
- Premium Subscriptions
These 3 segments have been mapped into the Trefis structure as Talent Solutions, Ads & Marketing and Premium Account Subscriptions respectively.
We believe the talent solutions segment that targets employers constitutes for the largest portion of LinkedIn's value for the following reasons:
Higher Revenues From A Small Number Of Large Employers
We estimate that LinkedIn charged over 43,000 large employers an average of over $46,400 annually for access to the its database of passive candidates. In comparison, premium account subscriptions for individuals and small businesses generate revenue of about $240 per account annually. This means that LinkedIn's annual revenue from a large employer customer is almost 200x the revenue from one premium subscription account.
Fees Charged to Large Employers Increasing while Average Premium Subscription Pricing Declines
We expect the fees that LinkedIn charges large employers to increase over the Trefis forecast period as a growing LinkedIn user base makes LinkedIn platform even more attractive to employers. In comparison, we expect the average premium subscription amount to decline as the mix of premium subscriptions shifts towards lower cost subscriptions driven in part by more international users.
Acquisition of Lynda
LinkedIn acquired Lynda.com (an online learning company) in a deal valued at $1.5 billion in 2015. The 52% cash and 48% stock deal will help LinkedIn connect people to the requisite skills required for job opportunities. Additionally, it would help boost the professional networking site’s popularity among students and raise the engagement levels on the platform. The business contributed $107 million in revenues during 2015. However, the acquisition could slightly cause margin pressure in the near-term.
Focus On Mobile Platform
LinkedIn is making efforts to leverage growth in the mobile market. The mobile platform accounts for more than 50% of the total traffic to LinkedIn. The number of page views on mobile grew faster than just for desktop. To bolster its mobile offering, LinkedIn acquired the newsreader app Pulse. With this acquisition, the company intends to boost content offering on its app and website to increase user engagement and improve its targeted search.
Increasing Proportion Of Revenues From Talent Solutions
Revenues from Talent Solutions (Hiring and learning & development) business as % of total revenues has steadily increased in the last few years, growing from 22% in 2008 to 63% in 2015. Meanwhile, the figure for Premium Subscriptions business has declined from 45% to 18% during the same period. We expect the Talent Solutions segment to continue to be driven by new customer additions, price hikes, and sales workforce increases in the future.
Innovative Recruitment Products To Boost Revenues
LinkedIn has launched advanced recruitment solutions such as LinkedIn Recruiter, and made improvements to LinkedIn profiles, desktop homepage, and LinkedIn organizer. These products have adaptive features that help hiring managers target users based on profile information, including experience, industry and location. Such products will help LinkedIn increase the number of client companies and the revenues charged per client company.
Similarly, Monster is ramping up its efforts to improve resume search by incorporating intelligent search technology, Semantic 6Sense, into its next generation of products for both employers and job seekers. The search technology is designed to be smarter than traditional keyword search by incorporating more weighting factors for searches.
Launch Of Publishing Platform Will Drive Engagement
LinkedIn's publishing platform is also contributing to rise in engagement levels. The company counts its publishing platform as one of the six pillars for future growth.
LinkedIn Is Expanding Across Geographies And Demographic Groups
Expansion across geographies and demographic groups are other initiatives that LinkedIn is taking to propel its growth.
Since it a launched a simplified Chinese site at the beginning of 2014 - LinkedIn has seen millions of member additions from China making it one of the key growth markets for the company. The share of international revenue in overall revenues increased from 32% in 2011 to 40% in 2014 but declined to 38% in 2015. We expect this proportion to gradually rise in the future.
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on: DCF Methodology
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