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LinkedIn Builds a Facebook for Grown-Ups

The networking company's first-quarter revenue more than doubles as it hones in on professionals and professional services.
David Rosenbaum, CFO.com | US
May 4, 2012

LinkedIn CFO Steve Sordello announced yesterday that the company's first-quarter revenue rose to  $188.5 million compared with 2011's $93.9 million, an increase of 101% that beat analyst expectations and caused the stock to rise more than 8% this morning. The company's profits also doubled as it added 16 million new members in the quarter, bringing the network's membership to161 million in more than 200 countries and territories, with 61% outside the United States.

On yesterday's earnings call, LinkedIn CEO Jeff Weiner confirmed that the company would be buying SlideShare, a website that facilitates the sharing of business presentations across platforms (including iPads, iPhones, and Android devices). This acquisition is in line with both LinkedIn's focus on professional services and with the fact that, according to Sordello, visits from mobile devices to LinkedIn's pages grew 275% in the quarter, with 22% of its unique visits in the last week of March originating from mobile devices.

LinkedIn's $118 million purchase of SlideShare can be compared with Facebook's $1 billion deal last month for Instagram, a
photo-sharing application. With these acquisitions, both networks are attempting to add value for their members, but while Facebook's Instagram works the social side of the street ("Here we are in Sicily!"), LinkedIn's SlideShare focuses on business applications ("Here's a graph of our Q1 sales!").

Both companies are founded on the principle of Metcalfe's Law: the value of a network increases as the square of the number of its users increases. While the math behind Metcalfe is arguable, it's hard to dispute Netscape co-founder and current Facebook board member Marc Andreesen's interpretation that the more nodes added to a network, the more valuable it gets for everyone because "all of a sudden there's all this new stuff that wasn't there before." 

That belief underlies the expectation that Facebook, with almost 900 million members, will be valued at close to $100 billion in its upcoming public offering, even though its revenue stream is highly dependent upon third-party advertising. Many analysts believe that such advertising will struggle as people increasingly access Facebook via mobile devices with small screens and therefore limited real estate for ad display. Yesterday Weiner acknowledged the challenge of building LinkedIn's ad business in the mobile era. 

Still, it's LinkedIn's goal to "bring all business lines into the mobile environment," he insisted, adding that "we gotta get it right."

An advantage LinkedIn possesses in leveraging Metcalfe's Law is that because the company is self-defined as a professional-services site rather than a social one, the value of each node on its network is inherently high. That's because business people already are conversant with the usefulness and monetization of networking. According to OnlineMBA, about 50% of LinkedIn members have a college degree, compared with 24% of Facebook users. Not surprisingly, LinkedIn users trend older than Facebook's, and on average earn more money.

Also working in LinkedIn's favor is that, unlike Facebook, it's not as dependent upon advertising. LinkedIn has three lines of business: paid, premium membership subscriptions; recruiting and hiring services; and advertising. All are showing varying degrees of growth, with recruiting leading the way, according to Sordello.

Based on that, he said, LinkedIn would be adding to its sales force while continuing to invest in research and development to improve its "People You Might Know" recommendation algorithms and interface. It also plans to continue to reach out to students and recent college grads.

That said, LinkedIn is not, and probably never will be, as sexy cool as Facebook. But with the synergies built into its business model, and a growing membership deepening the pool for both recruiters and advertisers, it's looking increasingly like Sordello's prediction that LinkedIn will beat analyst revenue predictions for the next quarter and quarters to come is well founded.




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