Here’s Why LinkedIn Corp (LNKD) Is a Risky Bet

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Contrary to Facebook Inc (NASDAQ:FB), LinkedIn Corp (NYSE:LNKD) has more than doubled since its IPO. The online professional network has enjoyed good dynamics this year, too. Its stock is up 55% this year. There is one thing that LinkedIn shares with Facebook, and it’s the huge current valuation. LinkedIn is trading at a P/E multiple of 524, while Facebook Inc (NASDAQ:FB) is trading at a 2363 P/E multiple. Sure, stock market is about the future, but can LinkedIn Corp (NYSE:LNKD) live up to the investors’ expectations?

LinkedIn Corp (NYSE:LNKD)

What would fuel the necessary growth?

LinkedIn has three revenue sources: talent solutions, marketing solutions, and premium subscriptions. Talent solutions, which allows recruiters to find and attract prospective employees, is the biggest revenue source, accounting for 57% of total revenue. Marketing solutions, which gets money from ads, accounts for 23% of total revenue. Premium subscriptions, which offer additional options for interested users, make up 20% of total revenue.

The professional social network is competing with more traditional businesses, such as Monster Worldwide, Inc. (NYSE:MWW), that offer employment solutions for job seekers and recruiters. As talent solutions make more than half of LinkedIn Corp (NYSE:LNKD)’s revenue, the developments in this area would be crucial for the success of the company.

The target audience of Monster and LinkedIn intersect, but are not the same. LinkedIn is targeting a more sophisticated audience than the one of Monster Worldwide, Inc. (NYSE:MWW). In addition to that, LinkedIn is more about finding people who are not in active job search and offering them an attractive opportunity, while Monster Worldwide, Inc. (NYSE:MWW)’s service is based on job seekers who are actively searching for a job.

The fact that LinkedIn Corp (NYSE:LNKD) is targeting a more sophisticated audience would be a growth limiter for the company. There are a lot of jobs, especially in the small business sector, that do not demand their seekers a high level of networking and presentation skills. However, these jobs are crucial for the day-to-day business, and they need to be done. So I would not say that LinkedIn is changing the way every business hires employees.

On the marketing side, LinkedIn’s revenue is projected to grow 46% this year and reach $380 million. Facebook’s ad sales are projected to grow 38% to $5.89 billion. Given extremely high expectations, such level of growth could potentially disappoint LinkedIn Corp (NYSE:LNKD) investors.


Let’s turn to forward P/E instead of the current one. LinkedIn is trading at a forward P/E of 85 while Facebook Inc (NASDAQ:FB) is trading at a forward P/E of 30. These are all projections, and the companies still have to meet them. It would be extremely hard to do this for LinkedIn Corp (NYSE:LNKD). The current state of the world economy is a hurdle to job growth. The job market is sluggish almost everywhere, especially in Europe. While LinkedIn gets most of its revenue from job-related services, it would be hard for the company to overcome this trend. I expect the growth rates of LinkedIn to slow over time.

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