Wednesday, February 29, 2012

LinkedIn Corporation (NYSE: LNKD)

Launched in 2003, LinkedIn has grown to be world's largest professional network with over 150 million users, with the majority located outside of the United States. In 2011, LinkedIn members performed over 4.2 billion "professionally-oriented searches" on the platform, on which over 2 million companies have public profiles. Remarkable, considering that it is almost nearing a decade in operation, is the continuous growth. For 2011, annual revenue was up 155% and stood at $522 million. This follows performances in 2009 and 2010, which saw revenue grow annually at 52% and 102%, respectively. Members, unique users, and page views in 2011 all increased around 60%.

LinkedIn still trumps Twitter and Facebook when it comes to use from recruitment companies. While the latter two are experiencing rises in the use for recruitment, LinkedIn maintains its edge as it is "geared up as a professional networking facility." The internal news section, LinkedIn Today, is filled with business- or career-oriented stories, and have Wall Street Journal, CNN Money, and Bloomberg as some of its top sources. This is a wide contrast to Facebook and Twitter, which are social networks without any specific categorizations.

This past week, Linked acquired the start-up Rapportive for 15 million in cash. Rapportive is a Gmail plugin that shows users the latest social network updates from others that the user corresponds with. CEO of Rapportive has mentioned that the services will be supported by LinkedIn. The service will allow users to skip the Google search of names, thereby "cutting off Google+’s opportunity to steal the click."

At the closing of trading on February 28, LinkedIn traded at 86.95. With a market cap of $8.38 billion and annual net income of $11.9 million in 2011, the P/E ratio is at a whopping value greater than 700. Google and Yahoo both have values at or around 20. In terms of price-to-sales ratio, the value of 16 is still significantly high, but is lower than Facebook's projected value. One reason for the high price ratios of LinkedIn is its relatively low profit margin. At 2.28% for 2011, it is drastically lower than Google's 25.69%. However, looking at the 2011 income statements, an amount of $132 million, or about 25% of the total revenue, was spent on research and development, nearly doubling Google's figure of 13.6%. Whether or not LinkedIn can sustain the recent growth, and whether or not the heavy research and development can lead to continuously innovative services will ultimately decide the trajectory of LinkedIn.

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