Invest in yourself, invest in
your network, and invest in society. When you investin all three, you have the best shot at reaching your highest professionalpotential. As important, you also have the best shot at changing the world. – Reed Hoffman, Co-founder,LinkedInReid HoffmanEntrepreneur. Product Strategist. Investor.San Francisco Bay Area InternetCurrent Greylock, LinkedIn, WrappPrevious College Eight, UCSC, Six Apart, TaggedEducation Oxford University
LinkedIn is the world’s largest
professional network on the Internet with morethan 200 million members in over 200 countries and territories.• LinkedIn recently celebrated 10 years of business.• Started in 2003 with 14 employees. Now has 3,779.• LinkedIn added 57 million new members in 2012.• Total revenue increased 86% in 2012 to $972 million.
LinkedIn is just getting started.•
CEO Jeff Weiner estimates its immediate addressable market is $27 billion;long-term it’s $80 billion.• Trailing twelve month sales just $1.1 billion or 4% of its immediate potentialmarket.• Half the Fortune 100 are potential customers.• Just 2.6 million small and medium enterprises have free company pages.There are 5.91 million small businesses in U.S.Substantial market potential.
• January 2013 WSJ survey
showed 40% of small businesses found it valuable.LinkedIns popularity is growing with small businesses.Substantial market potential.
Small businesses are a large,
relatively untapped market.• The SBA considers small businesses those with lessthan 500 employees.• 99.7% of all employer firms in the US are smallbusinesses.• 52% of Americans work for small businesses.Substantial market potential.
Recognized inadequacies of hardware in
late 2011 and fixedproblem at expense of short-term sales.• Growth was taxing hardware.• In November 2011, froze development of new features to improverobustness and capacity of infrastructure.• Talent Solutions revenue per customer dipped to all time low for Q4 2011,just 7 months after IPO.Manages for future.
Decision was the right one
for all stakeholders.• Talent Solutions sales per customer hasrisen from $9,196 to $10,159.• Share price has risen 184% during sameperiod.Manages for future.
Stock price fell to lowest
level in late 2011, but has recovered nicely.Manages for future.Price jumped 21% on February 8, 2013 after announcing Q4 2012 EPS that crushed estimates and raising guidance.
Adding features to help expand
members networks.• Encouraging members to add additionalconnections.• Also a "People You May Know" featurebased on people your connections know.Very innovative.
Added "Groups" to engage members
in community discussions.• Groups are comprised of people withsimilar employment and educationalbackgrounds.• A great way to expand your network.Very innovative.
Adding new feature to allow
members to transform their profiles.• Gradually releasing feature so members can add samples of their work to theirprofiles, including video.• Will transform profile to a digital, interactive portfolio.Very innovative.
Recently introduced new version of
"LinkedIn Recruiter."• New version easier for recruiters to use andeven suggests people to hire which searchesmay not have found.• Goals are to keep recruiters on the site longerand make their time more productive.Very innovative.
The Bull Case• Hyper-growth in
all areas.• Profitability has been growing since IPO in May, 2011.• Market potential is substantial.• Expanding internationally and sales per employee higher than in US.• Stickiness + Innovation.• Managements wealth tied up in LNKD stock.• Total Shareholder Return (TSR) since IPO exceptional.
Very successful IPO.• IPO was
priced at $45/share on 5/18/11.• First public sale was at $83/share on 5/19/11.• Stock closed at $94.25 on first day of trading,up 109.4% above its IPO price.Excellent TSR.
Total 2-Year shareholder return is
exceptional.• LinkedIn stock has gained 120% in 2 yearsfor those who bought at the openingmarket price of $83.• For those lucky enough to get in at the$45 IPO price, their gain is 305%.Excellent TSR.
In the drive to increase
membership, little information is required to join.Dependent on number & quality of profiles.• CFO Sordello justified recent price hike by the doubling of its membership to 200 million.• Entering just your name, job title, location and industry makes you a member.• While counting as a new "Registered Member," how valuable is a skeleton profile to customers?
Passive candidate recruiting is key
to customers who need comprehensive data.• From Q1 2013 10-Q:–If our members do not update their information orprovide accurate and complete information when theyjoin LinkedIn or do not establish sufficient connections,the value of our network may be negatively impactedbecause our value proposition as a professional networkand as a source of accurate and comprehensive data willbe weakened.Dependent on number & quality of profiles.
Content difference between "Profile Strength"
levels is small.• LinkedIn has 6 "Profile Strengths": "Getting Started," "Beginner," "Intermediate," "Advanced,""Expert" and "All Star."• Entering your name, title, location and industry ranks you as "Getting Started." A title of"Retired" is sufficient.• Two skills, one job and one school with the dates of attendance qualifies as "Advanced."• Adding one more job and skill, raises rank to "Expert."Dependent on number & quality of profiles.
Quantity appears to be important
than quality.• LinkedIns revenues are primarily dependent on the number of "RegisteredMembers" so increasing that number is paramount.Dependent on number & quality of profiles.
3 of the 4 metrics
reported are “vanity metrics."• Registered members, page views and unique visits are good for headlines.• Analytics company Mixpanel and its investor Andreessen Horowitz insteadsuggest informative measures of retention and engagement.Most metrics dont measure effectiveness.
Company admits that a “substantial
majority" of members dont visit even monthly.• Q1 2013 10-Q states:• The number of our registered members is higherthan the number of actual members and asubstantial majority of our page views aregenerated by a minority of our members.• Further, a substantial majority of our members donot visit our website on a monthly basis...Most metrics dont measure effectiveness.
Number of registered members and
unique visits not indicative of broad activity.•According to quantcast:•1% of LinkedIns global users ("Addicts") account for 31% ofall visits.•64% of its global users are "Passers-By," visiting just once amonth. (LinkedIn counts even non-members in UniqueVisits.)•Not known: What percent of members dont visit evenmonthly?Most metrics dont measure effectiveness.
Less than 1% of registered
members are paying members.• Last quarter, LinkedIn reported $65.6 million in PremiumSubscriptions and 218.3 million members or $0.30/member inpaid subs.• Since the cheapest sub is $25/month or $75/quarter, there are atmost, 0.9 million paying members or 0.4%.• Few members appear to find the service worth paying for.Most metrics dont measure effectiveness.
Metrics which Would Measure the
Companys Effectiveness• % of registered members with paid (not trial) premium subscriptions(Netflix discloses this information).• % churn in premium subscribers and talent solutions customers.• Number of members who landed a job via LinkedIn.• % of Talent Solutions customers who hired a member.• % of Page Views which led to reading ads (spending at least 10 secondson the ad to eliminate errant clicks).Most metrics dont measure effectiveness.
US labor force participation rate
(LFPR) is continuing to fall.• As of March, 2013, only 63.3% of those aged 16-64 were employed or lookingfor work--about 125 million people.• 90 million Americans were unemployed and not even looking for work.US market nearly saturated.
According to BofA economist Michelle
Mayer, the decline in the LFPR Is due to two factors.• Half the decline is due to agingpopulation (the red line).• The rest is due to a weak economyand more young people opting forschool vs. work.US market nearly saturated.
LinkedIn may have saturated the
US market for workers with college degrees.• According to quantcast, 57 million members (76%) have at least a collegedegree and 82% of members are at least 25 years old. If 82% of the collegegrads are 25+, that would be 46.7 million members.• For April, 2013, the BLS reported 49.5 million college grads age 25 andhigher in the civilian work force.US market nearly saturated.
What is LinkedIns downside?• Weiner
estimates its immediate addressable market at $27 billionand $80 billion long term.• Latest TTM Sales were $1.1 billion.• For Q1 2013, the rate of growth in TTM sales YoY declined 28.1%from 100.6% to 72.3%.• How much will growth decline from here?Potential limited.
How should we consider LinkedIns
potential market?• Weiner said there are 3.3 billion workers in the world. But, how many are LinkedIncandidates? A fraction.• In 2010, average world household income was $9,218.• In 2012, the International Labour Organization calculated average world wages in PurchasingPower Parity (PPP) dollars (what $1 buys here):• Average world wage was $18,000.• Only 31 countries had incomes above the average: 19 in Europe, US, Canada, S. Korea,Singapore, Japan, Hong Kong, Australia, New Zealand, S. Africa, Israel, Turkey and Qatar.Potential limited.
LinkedIns Focus on Doing Just
One Thing Well May Limit Growth• In a recent interview with Bloomberg West, co-founder Hoffman said the lessonhe learned from his 90s experience with SocialNet was:You should focus on one domain that really matters to people and dothat domain really well, as opposed to a platform across all of them.• Where Amazon would be today if Jeff Bezos had insisted on focusing on justselling books?Potential limited.
Smartphone screens are small.• The
usable area on a smartphone screen is nearly 10 times smallerthan the smallest PC, reducing the space for ads.• 27% of LinkedIns sales come from ads• Other companies have seen income drop with increasing adoptionof mobile.Shift to mobile may reduce sales.
Bull vs. Bear bottom line.LinkedIn
is a very profitable company with:• a gross margin of over 87%.• TTM CFO which continues to dwarf net income.• TTM FCF which has been positive since its IPOand continues to grow.• Stock is up 184% since low in 2011.
Bull vs. Bear Bottom LineBut,
its Price/Sales ratio is still very high at 17 comparedto historical peaks of companies like Amazon, Googleand Netflix.
Bull vs. Bear Bottom LineLinkedIn
has the advantages of a first mover,continues to grow and innovate and currently haslittle competition. Only time will tell whether itsbest days are ahead or over.