LinkedIn (LNKD): Linked to Growth

There’s a jaded school of thought on Wall Street that social media is a bubble and too risky for sensible investors, but one company — LinkedIn Corp — (NYSE:LNKD) has repeatedly proven the pessimists wrong.

lnkd linkedin stockLinkedIn is the world’s biggest professional networking service on the Internet. Based in Mountain View, California, the company was founded in 2003 by former PayPal executive Reid Hoffman, who has emerged as a Silicon Valley guru and billionaire.

Once ridiculed by techno-hipsters as “Facebook for losers,” LinkedIn now exerts profound influence on professional networking and recruiting around the globe. The company’s membership is also branching out beyond just corporate executives and attracts creative people from all walks of life.

Yesterday, Hoffman’s vision was validated yet again, as LinkedIn reported fourth-quarter 2014 operating results that blew the doors off expectations. The company’s earnings per share (EPS) rose 56% year-over-year to 61 cents, exceeding Wall Street’s estimates by 8 cents.

LinkedIn’s fourth-quarter revenue climbed 44% year-over-year to $643 million, beating estimates of $617 million. For the full year, LinkedIn reported $2.22 billion in revenue and $2.02 in EPS, exceeding expectations of $2.19 billion and $1.94, respectively.

LNKD ended the quarter with 347 million members, an increase of 15 million compared to the third quarter and up 25% year-over-year. LinkedIn’s members also are increasingly global, with more than 75% of new sign-ups from outside the United States.

Thursday’s results marked the fourth straight quarter in which LNKD smashed through projections. In the wake of yesterday’s earnings announcement, LinkedIn stock was soaring 13%.

LinkedIn management provided guidance for first quarter 2015 revenue in the range of $618 million to $622 million and EPS of 53 cents.

LinkedIn’s Three-Legged Revenue Stool

Monetizing member bases and viewership on the web is notoriously difficult, as the demise of many once-dominant media empires attests. Scores of social media upstarts have enjoyed meteoric rises, only to crash and burn because they put all of their revenue eggs in one precarious basket.

A secret to LinkedIn’s success is the company’s multifaceted revenue approach through three business divisions that pursue new sales in distinct ways: recruiting tools, marketing solutions and premium subscription sales.

The investment community’s surprise yesterday at LNKD’s stellar fourth quarter performance conjures the historic day on May 19, 2011, when the world’s preoccupation with social media reached an apotheosis in the form of LinkedIn’s initial public offering (IPO).

Shares of LinkedIn more than doubled in their first day of trading — a much better showing than the botched IPO of Facebook Inc (NASDAQ:FB) in 2012.

Since its IPO in 2011, LNKD has consistently produced strong and growing earnings, unlike the checkered operating performances of social media competitors such as Facebook.

LNKD Stock: Poised for Growth

For 2015, LinkedIn management plans to expand the company’s international footprint, particularly in the developing countries of South America, Asia, the Middle East, and India, where technologically savvy consumers are entering the middle class and becoming attuned to the importance of professional networking.

The spread of corporate outsourcing to India has made that emerging nation a source of enormous opportunity for LNKD. The majority of Indian members on LinkedIn toil in the growing fields of information technology, computer software, telecommunications, and financial services. Accordingly, LinkedIn has opened new offices in Bangalore, Delhi, Mumbai and Bengaluru.

LinkedIn’s growth strategy this year also includes the acquisition of other social media sites that complement its business model. LinkedIn’s recent acquisitions include ChoiceVendor, which disseminates customer reviews of business-to-business service providers.

With a fast-growing membership, brand name affinity with users, diverse revenue streams and an aggressive international expansion strategy, LNKD appears linked to long-term growth.

As of this writing, John Persinos did not hold a position in any of the aforementioned securities.

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