Linkedin Corporation (NYSE:LNKD) is wreaking havoc on the recruitment market. Headhunters and recruiters are turning to the social network more and more every year, as it becomes an increasingly popular service for finding both passive and active job seekers.
98.2% of staffing professionals said they use some form of social media to find candidates in a recent survey by Bullhorn. That’s up from 94% in 2011. Furthermore, 97.3% of respondents specified using LinkedIn.
With numbers like that, investors might think that the company has already saturated the market. Having averaged 100% growth in revenue over the last two years, it seems impossible for LinkedIn to continue growing at such a rapid pace. However, with 2012 revenues still slightly under $1 billion, I see plenty of room for LinkedIn to continue disrupting the market and growing revenues.
Understanding the size of LinkedIn’s market
In 2011, Mark Mahaney of Citigroup estimated the online jobs recruitment market size at $3 billion. This implies that if you combined LinkedIn’s 2011 “Talent Solutions” revenue of $261 million with Monster Worldwide, Inc. (NYSE:MWW)’s $894 million in revenues from career services, you’d encompass nearly 40% of the entire market.
In 2012, LinkedIn grew Talent Solutions to more than $523 million in sales, while Monster saw revenues fall to $814 million for its career services. Clearly, not all of LinkedIn’s revenue growth is coming from Monster. I believe it’s taking sales away from outside of the online jobs recruitment market. In fact, it seems the addressable market for LinkedIn is much bigger than Mahaney’s 2011 estimate.
The worldwide recruitment market (traditional and online) continues to grow, as companies seek international talent, and more countries like India and China see an expanding middle class. Research from Koncept Analytics estimates that the worldwide recruitment market could reach $369 billion next year.
If 98% of recruiters are using online recruiting methods, how can they only make up 1% of the market’s revenue? The numbers don’t add up.
Research from Bersin & Associates found that among total talent acquisition spending by U.S. companies in 2011, professional networks made up 3%. What’s more, Bersin & Associates expects that number to improve, as more companies realize that professional networks provide the best “bang for the buck.” The 3% of spending on professional networks ultimately filled 10% of positions. Comparatively, traditional recruiting agencies made up 29% of total spending to fill just 8% of positions.
Combined, professional networks and job boards made up 17% of the $124 billion U.S. recruiting market in 2011. This implies an addressable market of $21 billion in the United States alone for LinkedIn.
As mentioned earlier, that number is growing, as LinkedIn and other web companies disrupt the market. As LinkedIn expands internationally, and countries like China and India see a growing middle class, spending in the rest of the world ought to follow a similar trend. That could create a rapidly growing, $50 billion-plus market for worldwide online recruitment spending.
In other words, there’s plenty of runway left.
Why LinkedIn will continue growing
LinkedIn has surpassed critical mass. Now, with more than 200 million users, LinkedIn is the professional network. Established users and widespread use by companies, recruiters, and jobseekers have created a moat and an industry that’s hard to break into.
LinkedIn began offering premium services to recruiters about eight years ago. In 2007, “Hiring Solutions” generated $7.5 million in revenue, which was 23% of the company’s total. Last year, the company renamed the product “Talent Solutions,” and it generated $523 million in sales – 54% of total revenues. The Talent Solutions service is by far the biggest driving force behind LinkedIn’s revenue growth.