5 Ways LinkedIn Corp (LNKD) Will Rule Web 3.0

Page 1 of 2

Facebook Inc (NASDAQ:FB) has been the darling of the social media world of late. Up nearly 60 percentage points over the past month, the company’s stock price has finally snuck above last year’s IPO price of $38—a fresh breath of sweet relief for many investors. Despite this psychological victory, there’s another play in this space that has more upside moving forward.

To avoid the suspense, let’s just come out with it: we’re talking about LinkedIn Corp (NYSE:LNKD).

Although it’s known by many of Web 2.0’s users as a less informal hybrid of Facebook Inc (NASDAQ:FB), Twitter and Yahoo! Inc. (NASDAQ:YHOO)’s Tumblr, this classification is incomplete. There’s much more to LinkedIn than meets the eye.

Let’s look at five reasons why it is positioned to be the dominant social media investment over the next decade, when Web 3.0—the next iteration of the Internet—finally takes hold.

1. The vision

LinkedIn Corp (NYSE:LNKD)Part of what makes LinkedIn Corp (NYSE:LNKD) unique is its strategic outlook. While nearly all of its competitors have positioned themselves to be reliant on advertising dollars to spur future growth, LinkedIn has three main revenue drivers. We’ll get to these shortly, but amidst all of this variation, chief executive Jeff Weiner has slowly implemented his long-term money-making vision: professional publishing.

In the company’s first quarter conference call earlier this year, Weiner says his goal is “to become the definitive professional publishing platform, where professionals come to consume relevant content and publishers come to share it.”

This statement sums up LinkedIn Corp (NYSE:LNKD)’s plans to morph itself into a fully-fledged publisher quite nicely. Simply put, the company’s strength lies in its ability to roster more than 250 titans of industry known as “Influencers.” Some CEOs, others top minds in academia, LinkedIn’s Influencers range from Arianna Huffington to T. Boone Pickens, with a dash of Mark Cuban thrown in for good measure.

The company’s April acquisition of social reader Pulse only adds to ex-Fortune editor Dan Roth’s sizable team of talent, and that’s just the beginning.

2. A new wrinkle

The second piece of this puzzle, which Weiner alludes to in the aforementioned quote, is the publishers’ side of the equation. Officially announced in a company blog post from VP David Hahn last month, LinkedIn Corp (NYSE:LNKD) will now allow any entity with a company profile to employ Sponsored Updates. According to Hahn, these promotional updates will appear on targeted users’ homepage feeds, effectively acting as a dual-communiqué to potential customers or jobseekers.

With over 3 million company pages on LinkedIn, that’s a large marketplace from the get-go.

iProspect has a nice summary of the initiative, which basically indicates that: (1) users can hide Sponsored Updates if need be, (2) cost-per-click and cost per thousand impression payment options are both available, and (3) the promotional posts “appear after 15 organic posts,” according to the digital marketing firm.

3. Diversification

This brings us to our next point: revenue diversification. Depending on the quarter, roughly 80-85% of Facebook Inc (NASDAQ:FB)’s top line comes from advertising dollars. LinkedIn Corp (NYSE:LNKD), on the other hand, is significantly less reliant on ads, with the stream making up close to 30% of total revenue. A near-even split between premium subscriptions and job listings make up the remaining 70%; Sponsored Updates will likely lead to further fragmentation.

It is this lack of overreliance on one source of revenue that truly represents the most attractive aspect of LinkedIn from an investment standpoint. Facebook Inc (NASDAQ:FB) is unprotected against wide swings in market value if mobile or desktop advertising figures miss Wall Street expectations in any given quarter. A LinkedIn shareholder is less exposed.

Likewise, LinkedIn Corp (NYSE:LNKD) is significantly more profitable than Facebook Inc (NASDAQ:FB), maintaining gross margins near 87%. Mark Zuckerberg & Co typically report margins 13 to 14 percentage points less than this mark.

Page 1 of 2