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Coverage Initiation: LinkedIn
LinkedIn (LNKD), the world’s largest professional networking website, recently joined the pages of The Value Line Investment Survey in the Internet industry. The company, based in Mountain View, CA, began in 2002 with venture capital from Sequoia Capital and launched its flagship website in 2003. The site has grown steadily since then and now has an enviable subscriber base, boasting nearly 120 million members in over 200 countries and territories, more than three times the membership of its nearest competitor.
Shares of LinkedIn have been publicly traded since May of 2011, when the Internet concern made its splashy, multi-billion dollar IPO. LNKD shares rocketed past their IPO price of $45 and ended 171% higher in its first day of trading, evoking comparisons to the heady tech-bubble days. Since topping out at an intra-day high of over $120 a share in its first day of trading, the stock has settled back to about $80 a share. Although the price of LNKD shares are, like the Internet darling stocks of the late 1990s and early 2000s, seemingly uncorrelated to the present earnings picture. Investors appear to be encouraged by the company’s strong growth prospects.
LinkedIn has a credible business model. Revenue sources include online hiring and marketing solutions, premium subscriptions, and offline field sales. Too, the business is expanding. In the second quarter of 2011, LinkedIn clocked an average of 81.8 million unique visitors a month, an 83% year-over-year increase. The company is growing rapidly in emerging market India, and is penetrating the mobile device platform, establishing LinkedIn applications for Android, iPhone, and iPad. Mobile page views rose 400% year over year in the June period, making mobile apps among the fastest-growing parts of the company’s suite of online offerings. The result of all this is that the top line in the first half of 2011 more than doubled versus the pro-forma 2010 tally. Added to this impressive revenue growth is the fact that the company is turning a profit, albeit a small one, so far. Indeed, LinkedIn emphasizes the importance of profitability, even while making substantial capital investments to help expand the network and develop new technologies and customer offerings.
Moreover, LinkedIn’s growth plans are clear. The company has expanded aggressively in Europe, opening a business hub in Stockholm, and in Asia, opening a regional headquarters in Singapore. LinkedIn now employs 1,515 people, a 119% increase compared to a year earlier. The balance sheet is healthy, with ample cash and working capital on hand at the end of the second quarter. The company has no debt. Thus, LNKD has plenty of financial flexibility to support even more aggressive expansion opportunities.
There are caveats, of course. LinkedIn has not yet been through a strong job-growth cycle, which may well decrease demand for its online networking services. Too, there is execution risk in the company’s expansion plans. Moreover, stocks without much trading history can be diffulct to value. This issue is currently trading at a very high price-to-earnings multiple, and impressive growth prospects may well be disounted by the price of this equity. Now that it is in the Survey, however, interested investors can check on the health and prospects of LinkedIn, and decide whether to increase or decrease their holdings of the equity.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.