LinkedIn is much more than a social and professional network, the company is a disruptive innovator in the global human resources industry, it has a rock solid business model and outstanding long term growth prospects. Valuation may be hard to grasp, but that shouldn´t stop intelligent investors from making money in LinkedIn Corp (NYSE:LNKD) over the coming years.
LinkedIn is usually associated with Facebook Inc (NASDAQ:FB), since both companies can be put under the “social networks” category, and some people tend to think of LinkedIn Corp (NYSE:LNKD) as the professional oriented version of Facebook Inc (NASDAQ:FB). When it comes to business models and competitive strengths, however, there are big differences to consider.
While Facebook makes most of its money from advertising, LinkedIn makes only 23% of revenues from that business. The big cash cow when it comes to LinkedIn is talent solutions for employers, which provided 57% of revenue in the last quarter, with the remaining 20% coming from premium subscriptions.
Online advertising is a growing market, but Facebook Inc (NASDAQ:FB) needs to compete against an undisputed industry leader like Google Inc (NASDAQ:GOOG) in addition to smaller players. Google Inc (NASDAQ:GOOG)‘s search product is almost ideal when it comes to online advertising: when someone in a certain area is searching for “Mexican restaurant,” for example, the owner of a nearby Mexican place has some big incentives to pay up in order to come out better positioned than its competitors.
Information and context are crucial assets in online advertising, and Google Inc (NASDAQ:GOOG) has access to enormous amounts of data regarding users of its multiple services. Besides, traffic is shifting towards mobile, and Google is in a position of remarkable strength in that industry since it owns not only the leading mobile operating system on a global scale, Android, but also applications and services like Gmail, YouTube, Search and Maps, which are tremendously popular among different platforms.
LinkedIn Corp (NYSE:LNKD), on the other hand, is the top dog in online recruiting, and its customer base of more than 225 million users provides a self sustaining competitive advantage for the company via the network effect. The bigger LinkedIn gets, the more valuable the service becomes for both hiring companies and professionals, and this at the same time attracts more users from both sides.
LinkedIn Corp (NYSE:LNKD) is delivering explosive growth rates; revenues have increased at an average compounded growth rate of more than 97% annually over the last five years. Importantly, the talent solutions segment has been gaining participation versus advertising – marketing solutions – and this is a big positive in terms of business model quality.