Last week, LinkedIn (NYSE:LNKD) posted a blowout earnings report. Revenues soared 105% to $167.7 million, with non-GAAP earnings coming to 12 cents per share. On the news, the stock price spiked by 18% to nearly $90.
Among the hot social stocks, LinkedIn certainly is a standout. For example, Groupon (NASDAQ:GRPN) filed its earnings report last week as well. While it showed tremendous growth, there was still a loss, with the stock plunging nearly 14%.
So for investors, are there still opportunities to make money on LinkedIn? To see, here’s a look at the pros and cons:
Top Social Brand: When it comes to social networks for professionals, LinkedIn is the world leader and generated about 4.2 billion searches last year, and the company has roughly 150 million registered users
The growth is fantastic, too. LinkedIn is growing at a clip of two members per second. And much of LinkedIn’s growth is coming from foreign markets — in fact, about 60% of the user base is outside the U.S.
Diversified Revenue Streams: LinkedIn makes money from three main categories, which include Hiring Solutions, Marketing and Premium Memberships. Of these, the Hiring Solutions business is getting the most traction, up 136% in the latest quarter. This service helps companies recruit talent (which is leveraged from LinkedIn’s huge user base). There are more than 9,200 corporate customers, up 139% over the past year.
Innovation: LinkedIn continues to launch popular offerings. For example, the Sales Navigator integrates with customer relationship management (CRM) platforms like Salesforce.com (NYSE:CRM). There also are new mobile products — for Apple’s (NASDAQ:AAPL) iOS and Google’s (NASDAQ:GOOG) Android — which should increase user traffic and engagement.
A key to improving innovation has been LinkedIn’s platform program, which allows programmers to create apps. It now features more than 50,000 developers.
Competition. So far, LinkedIn has strong barriers to entry. But this could change over the years. One interesting competitor is BranchOut (here’s an interview with the company’s founder). BranchOut has built a LinkedIn-style system on Facebook, and it is growing at a hefty rate.
Another possible competitor is Salesforce.com, which has bought companies like Jigsaw to create a business contact system.
Growth: LinkedIn has doubled its growth for six straight quarters, so a slowdown seems inevitable. So the questions are when and how much? It is tough to tell. But oncoming competition should remain a problem, and the mobile strategy might take a while to get traction. Even Facebook has had challenges in this market.
Valuation: LinkedIn currently trades at 19 times revenues and 157 times EBITDA — pretty high levels. But at least Wall Street essentially believes the company will continue to grow for quite a while.
LinkedIn was an early player in the social networking space — and now it is reaping the benefits. More importantly, the market opportunity is huge, with the company projecting it could be more than $25 billion on a global basis.
But in light of the competition, massive valuation and the extreme volatility, investors should avoid LinkedIn stock for now.
Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He also is the author of “The Complete M&A Handbook”, “All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli or reach him via email. As of this writing, he did not own a position in any of the aforementioned securities.