Job searching is an evergreen industry and LinkedIn Corp (NYSE: LNKD) has captured the market tactfully. The company has a market cap in excess of $19 billion, which is surreal since it can basically operate from one building alone. Though its towering valuations have raised some brows, I believe that earnings multiples tell only half of the story.
Growth or not?
LinkedIn Corp (NYSE: LNKD) has a history of unrealistic P/E ratios, yet the company has reported impressive growth. While its P/E ratio has declined from 1,700x (yes 1,700x, not 1,700%) to 926x (again, not a typo), its cash flow from operations has risen by nearly 93% since its 2011 IPO. Going by the track record of ridiculously high valuations, LinkedIn Corp (NYSE: LNKD) shouldn’t have reported stellar growth in the first place. But it did!
Due to LinkedIn Corp (NYSE: LNKD)’s tremendous growth opportunities and relatively lower risk of sudden obsolescence, the market is happy to pay the hefty premium. As of now, LinkedIn has over 200 million professionals in its network, and its management expects to connect to as many as 500 million professionals. I think that the number is realistic especially since India and China alone are resided by over 2.5 billion people.
To continue the growth momentum, LinkedIn recently reinvented its job search engine. It added loads of new searching tools, which are claimed to pinpoint potential job candidates. If the claims hold ground, LinkedIn could soon become the “chillout” spot for most recruiters around the globe.
It’s not really a threat!
Unlike Facebook Inc (NASDAQ: FB), LinkedIn is isolated from dropping advertising rates. LinkedIn derives its revenue by providing premium access to its users, while Facebook Inc (NASDAQ: FB) makes use of conventional advertising techniques. Although the two are not direct competitors, Facebook has been indirectly giving competition to the professional social network.
Branchout and Glassdoor, which work as Facebook Inc (NASDAQ: FB) apps, are gradually catching up. Their business model is to facilitate professional networking within the Facebook application programming interface, or API.
I think this is a bit ambitious, and mixing professional and personal lives, just to save the hassle of logging into another network, seems like a bad idea. At best, these start-ups can boost Facebook’s advertising revenue over the intermediate term, but I don’t see Branchout and Glassdoor as serious threats to LinkedIn.
Although Monster Worldwide, Inc. (NYSE: MWW) is LinkedIn’s main competitor, the latter didn’t have to struggle to outperform its peer. Monster Worldwide functions as a job facilitator, allowing employees and recruiters to connect with each other.