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Beyond the IPO

Social-media darling LinkedIn is looking past today's hype as it lays the foundation for long-term growth. An interview with Steve Sordello, CFO, LinkedIn.
David McCann, CFO Magazine
December 1, 2011

In one respect, Steve Sordello is like many senior executives in Silicon Valley: he landed a C-level job at a dot-com at an age (31) that would be considered young if not downright precocious in any other industry, when he became CFO at publicly traded search-engine company Ask Jeeves in 2001.

But whether by knack or by luck, Sordello, who has served as CFO at the professional networking site LinkedIn since 2007, seems to preside over finance at dramatic moments for his employers. His tenure at Ask Jeeves began as the dot-com bubble burst, forcing him to focus on restructuring, layoffs, and divestitures, not to mention engineering a successful sale of the company. Next, a one-year stint at TiVo coincided with that company's most explosive period of growth and its first quarter of profitability.

This past May, LinkedIn became the first major social-media company to go public, propelling Sordello into what many regard as a very challenging finance post: CFO at a post-IPO company. But Sordello doesn't foresee a difficult professional shift. A good CFO skill set, he explains, "transcends being able to successfully take a company public — success rides on how the company was operated prior to going public." Sordello recently talked with CFO about Wall Street, the role of social media, and the present challenges facing LinkedIn.

Your stock price has had a wild ride. Do you watch that like an investor with a big position in LinkedIn might, living and dying with each day's movement?
Not at all. We expect it to be volatile in this environment. We have a very long-term focus. For example, we invest a very high percentage of our sales in R&D.

Do you think Wall Street understands that long-term mind-set and what social media is about generally?
As to the long-term mind-set, I think so. There was a lot of demand for our stock, so we were in a position to allocate it to investors who take a long-term perspective.

As to how they view social media, there is a learning curve that's happening. I just hosted a customer event, and they clearly understood the value of our hiring solutions. But you could also see that they were starting to understand the value proposition for LinkedIn members, and that employees who participate in social media can be more productive and successful over time.

You were at Ask Jeeves, though not in the CFO role, when that company went public in 1999. What was that like, compared with your recent experience at LinkedIn?
The two are very much apples and oranges. Back then, a lot of companies were going public before they were ready. I arrived at Ask Jeeves shortly before the IPO, so I wasn't much a part of the process, but I quickly discovered it should not have gone public. The company was going to miss its number the very first quarter and didn't even know it. It's a different market now. Companies go public when they're much larger and more solidified. LinkedIn is focused on the member first, not just on showing revenue growth.

What are some of the risks facing LinkedIn right now?
For any company in the Internet space, there is risk in that things move very quickly. You have a lot of people trying to take share from you or leapfrog you. The good news for LinkedIn is our scale; we have 130 million members and are growing at a rate of 2 members per second. So I think our risk right now is more execution-oriented. There are so many opportunities, there is a risk of trying to do too many things and ending up doing them at, say, a 20% level. We've fallen victim to that in the past. Now we're trying to focus on doing fewer things, but at a 100% level.

Are you building your finance team predicated on the company being a certain size in a year or two, or do you try to keep it lean and mean now and add as needed?
It's more the former. We want a team that can scale to that next level. Before I came here, a decision was made to switch from QuickBooks to a midtier ERP system, but I said no, we want to be a billion-dollar company and don't want to be changing systems a year and a half from now. The same thing goes with the team. That said, some employees are good at a certain phase of the company, and then there are times when you need to upgrade. Also, I'm currently in hiring mode. Because of our growth, I need to hire both a treasurer and a tax manager.

Most social-media channels struggle for years to make money, despite their valuations. Where are you with that right now?
We feel very good about our monetization capabilities. We've seen accelerating year-over-year growth for seven straight quarters. We have a hiring-solutions category where the primary revenue stream is from a software-as-a-service business model, which builds a backlog of revenue and has a high degree of predictability. Our marketing business grew 174% in the second quarter, year-over-year. And then we have a subscription business that allows outbound professionals — recruiters, salespeople, business-development people — to buy additional services. That is a very high-margin business.


Are social-media tools simply useful, or are they driving changes to society?
The answer could be both. You can think of LinkedIn the same way you think about a computer or Excel: a tool for getting something done. But we're in the early innings. It's only been a couple of years since the infrastructure has been in place to handle what's happening across social media, and yet this media is driving behavioral changes.

For one, people are representing themselves online authentically, whereas several years ago they used pseudonyms. People are allowing themselves to connect, to find and be found. Another major change involves networking. That word often has a bad connotation. Even I don't see myself as a networker. But people are using these tools in ways that leverage their network to get things accomplished. And third is sharing. There's been an explosion of content. Whether you're reading an article or getting insights from peers, it's powerful.

All of the popular social-media sites today allow users to connect to all the other major sites. Could that be a precursor to some kind of consolidation down the road?
No. Twitter is a soapbox, a broadcast platform for disseminating information quickly. Facebook is the backyard barbecue, a horizontal social platform. And LinkedIn is the office where you focus on work; it is professional content. All around the world there is some overlap between the social and the professional, but for the most part people want to keep them separate.

Do you have any concern that we might be in another technology bubble right now?
I do not think there's a bubble today that's in any way like 10 years ago. The market has changed quite a lot from just five or six months ago. Even technology companies have seen their multiples fall. In the early dot-com days, you had companies spending a lot on marketing to get eyeballs to their sites. Today, for a company like LinkedIn, it's viral; the growth is happening without the marketing spend. We're playing for a long-term outcome, and short-term valuations don't matter that much.




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