LinkedIn’s (NASDAQ:LNKD) shares are up by 20% after the company announced its Q4 2012 and full year results. The company has reported exceptional growth across almost all metrics including revenue growth, user base growth, international expansion and user engagement. This is likely to ensure that the stock will continue to trade at high levels in near term.
However, as LinkedIn heads into 2013, the growth from sheer user base expansion is going to slow down, and the company will have to shift its focus on increasing user engagement and better monetization of its platform. LinkedIn is already doing that and launched numerous features during the fourth quarter. The opportunities from job postings, premium recruiter subscriptions as well as individual professionals and sales tools such as its ales navigator feature are immense. Given the continued growth and recently released results, we are in the process of updating our price estimate for LinkedIn.
Snapshot Of Q4’s Growth
LinkedIn saw growth across all its business segments and key metrics. The overall revenues grew by 81% with the highest growth coming from LinkedIn’s talent solutions segment (~90%).  This segment includes revenues from job postings as well as recruitment services under which LinkedIn charges companies and provides them with premium recruitment tools and search capabilities. Even though the growth across other business segments such as premium subscriptions and marketing solutions was quite high, there is clear evidence that LinkedIn has a big opportunity to become a market leader in talent hiring industry.
The talent solutions business constitutes roughly half of LinkedIn’s value as per our estimates. As far as job postings on LinkedIn are concerned, they are increasing rapidly. In month of January alone, job postings (at any given time) increased from close to 160,000 to over 200,000.  This happened despite the launch of Facebook’s (NASDAQ:FB) social jobs.
We believe that the company has a tremendous opportunity with job postings if it continues to execute well. A market for 3 to 6 million monthly job openings exists worldwide currently and there is significant upside potential to our price estimate if LinkedIn can tap into even a quarter of this market opportunity (see What’s LinkedIn’s Opportunity In The Job Postings Market?).
Conventional revenue streams such as advertising and subscription benefited from a growing user base as well as increased user engagement leading to higher number of page views. Including Slideshare, LinkedIn’s unique visitors averaged 155 million in Q4 2012.  That’s a big number on which the company can cash in.
LinkedIn is witnessing the success of its mobile app as roughly 20% of the job views and close to 30% of job viewers were on mobile in the fourth quarter.  However, this implies that people are not browsing as much on mobile and that could perhaps weigh on the page view per user growth in the future.
As far as LinkedIn’s sales navigator product is concerned, the company stated that it is still in the early stages and there is a long way to go. However, if we assume that LinkedIn can get close to 100,000 customers signed up for Sales Navigator in next 2-3 years, it can add an incremental $50 million in annual revenues. Furthermore, if the company can garner 1 million such customers by the end of our forecast period, it can lead to $500 million in additional revenues. The opportunity is there!
Overall, LinkedIn seems to be blowing past growth expectations every quarter. But the question remains – how long will this continue? As soon as the growth falls, it is going to impact the stock and this is one risk that investors should be aware of. The company is doing great and is likely to continue its fast paced growth in near term. But we believe a lot of its current market value is hinged on continue high growth and any slowdown will not be well received. In addition to this, sales and marketing costs as well as R&D costs remain a concern and competitive risks may not be priced in.
We are currently revising our price estimate, which stands well below the market price.Notes: