LinkedIn: Headed Higher?

 | May 01, 2013 | 9:00 AM EDT  | Comments
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Wall Street is expecting big things when LinkedIn (LNKD) reports earnings after the close on Thursday. The stock is up 64% year to date and LinkedIn is expected to report first quarter earnings of 30 cents per share on revenue of $317.9 million.

Investors can't wait for the big day and have been giddy with excitement. Can the company link investors up with more profits?

There doesn't seem to be a day that goes by that I don't hear something positive about the quarter. It seems everyone is expecting a big earnings beat.

LinkedIn ended the fourth quarter with 202 million members and 116 million unique visitors. For the full year ended Dec. 31, earnings were 89 cents a share on revenue of $972.3 million. As the company has grown, revenue growth has slowed from 140% to an estimated 52% this year.

LinkedIn has been able to grow by expanding its field sales.  At the end of last quarter, 60% of LinkedIn sales came through its sales force. Businesses large and small have been paying a pretty penny to reach LinkedIn's gigantic user base, which by and large mostly come from the U.S. Employers are using LinkedIn's hiring solutions network to find talent.  The balance of revenue comes from display ads and premium subscriptions.

The company believes there are more than 650 million professionals worldwide that could benefit from joining LinkedIn. Worldwide talent acquisition and staffing solutions is an estimated $27 billion marketplace and LinkedIn believes it is the only player that addresses the market on a massive scale.

In early April the company announced it would acquire Pulse for $90 million. Launched in 2010, Pulse organizes news feeds for its 30 million mobile users. LinkedIn wanted Pulse so it could integrate its recruitment advertisements and drive user engagement. Pulse ingests news feeds from 750 publishers and allows users to customize their news feeds.   

As I see it, LinkedIn needs to expand out of hiring solutions and get users hooked on its platform, because to me it's rather dull. And I think it's like that for a lot of people. Unless you're looking for a job, looking to hire someone or trying to dig up some sales prospects, LinkedIn just isn't that interesting.

Sales and staffing are a big industry no doubt, but it doesn't seem to be as large a business as investors think. We've seen this movie before and it was called Monster Worldwide (MWW). Monster has been struggling along with the economy.

I wonder how long LinkedIn can continue its spectacular sales growth. LinkedIn sports a $21 billion market cap and trades at 142 times fiscal 2013 estimates. Pretty giddy indeed.

In fact, privately-held Indeed.com is LinkedIn's main competitor in the hiring solutions field. Indeed.com claims to have 100 million users and has surpassed Career Builder, Monster and LinkedIn as the place to find a job. Indeed has become the "Craig's List" of job postings. While Indeed doesn't provide all the services that LinkedIn provides, it does cost less to post job ads.

Look, I know there's a lot of excitement around LinkedIn, especially since the stock has become a proxy for an improving employment situation. But, it just seems like we've been down this road before. The market cap of the stock almost exceeds their addressable market. At this stage, I wouldn't link up with LinkedIn.

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