Facebook Inc (NASDAQ:FB) and LinkedIn Corp (NYSE:LNKD) are among the most innovative companies of our time, and they both provide interesting opportunities for investors to profit from the social networks boom over the next years. However, their business models are quite different, and this has material implications to consider.
Online recruiting
The big cash generator for LinkedIn Corp (NYSE:LNKD) is talent solutions for employers, which provided 56% of revenue in the last quarter, another 20% of sales came from premium subscriptions and the remaining 23% was produced by advertising.
LinkedIn Corp (NYSE:LNKD) estimates that its addressable market is worth around $27 billion, and it’s an industry in which the company has positioned itself as the disruptive leader. With more than 238 million members and 20,200 companies using its services, LinkedIn has already achieved critical mass, and the company is benefiting from the self-sustainable competitive advantage provided by the network effect.
Users need to be on LinkedIn Corp (NYSE:LNKD) because professional contacts, potential business partners, and job recruiters are using the platform. Hiring companies want to go where all the good candidates are, especially in the case of LinkedIn Corp (NYSE:LNKD), the place where they can even contact people who didn’t necessarily apply for a specific job.
The bigger LinkedIn Corp (NYSE:LNKD) 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. A growing platform means that LinkedIn should retain considerable pricing power over time as its services become more valuable.
The service is about much more than online resumes. LinkedIn allows people to build a full blown professional identity online, including the social and professional interactions that come with that. This means that users are unlikely to walk away from LinkedIn anytime soon as they have much invested in the professional network.
The company has delivered earnings results above analyst’s expectations in each of the last four quarters. Past performance is no guarantee about the future, but especially when investing in innovative online companies; it’s comforting to know that management has the ability to deliver financial results.
Online advertising
Facebook Inc (NASDAQ:FB) makes most of its money from online advertising, where the company competes against search engines like industry giant Google Inc (NASDAQ:GOOG) and the reinvigorated Yahoo! Inc. (NASDAQ:YHOO) which has been attracting new talent and revitalizing its products under the leadership of Marissa Mayer.
