by Timothy Lutts on January 19, 2015.
LinkedIn is the leading professional social networking platform in the world, with more than 277 million members in more than 200 countries who access the website in 20 different languages.
Founded in 2003, the company turned solidly profitable in 2009 and revenues and earnings have grown healthily since.
In 2013, revenues grew 57% to $1.53 million, while earnings grew 81% to $1.61 per share.
In 2014 (final numbers will be released February 5), revenues grew roughly 43% to $2.19 billion, while earnings grew roughly 20% to $1.94 per share.
And in 2015, analysts are looking for earnings growth of 42%.
So while the company is big, it still has plenty of growth ahead. And because it dominates its niche, it’s unlikely that any competitor will get in its way for years to come! Thus, the odds are very good that LinkedIn will be far larger and far more profitable, years down the road.
LinkedIn has three main sources of revenue:
- Talent Solutions, which accounts for 56% of revenue, is used by recruiters and corporations, who build branded corporate pages with careers sections, offer pay-per-click ads that are shown to LinkedIn users that match the job profile, and get access to the LinkedIn database of users and resumes.
- Marketing Solutions, which accounts for 24% of revenues, consists of pay-per-click ads placed by advertisers.
- Premium Subscriptions, which accounts for 20% of revenues, provides a variety of job-offering and job-finding services to businesses and job hunters.
All together, they make up a complete solution for matching professional workers to jobs, a solution that’s revolutionary because it didn’t exist before, and it replaces the antiquated paper-based systems of centuries before. And because it’s digital, it’s global. Already, 40% of the company’s revenues come from outside the U.S.
LNKD came public in May of 2011 at 45, and hit 122 within a week, a clear sign that the stock was red-hot. Trouble is, red-hot stocks are seldom held for long, and sure enough, seven months later, LNKD was down to 56 (a drop of 54%).
That set the stage for the stock’s main advance, which took it all the way to 257 in September 2013 (an advance of 359%).
But once again, the stock was too hot, and the selling that followed took it down to 136 (a drop of 47%) last April as the market corrected. 3 And now it’s trending up again. Most recently, LNKD hit resistance at 240 and pulled back to 215, and this is probably a good entry point for long-term investors, Almost certainly, the maximum correction from 240 will be less than the previous correction (47%), simply because the stock is maturing and being held by growing numbers of institutional investors.
Still, there’s a fair possibility that the stock could fall as far as 190, which is where it found support in October. So, you could simply buy here, close your eyes, grit your teeth and hope it’s higher next time you look.
Or, you could listen to the master, Mike Cintolo, chief analyst of Cabot Market Letter, whose readers receive updates on LNKD every week so they know exactly what do—with LNKD and every other high-quality growth stock in Mike’s portfolio.
The revolutionary stock I’d like to talk about today is LinkedIn (LNKD).
LinkedIn was founded in Mountain View, California, in 2003 and in the decade since has cemented its position as the world’s largest professional network, with 225 million members around the world.
Members use LinkedIn to connect with colleagues, keep track of industry competitors, find new jobs, find new employees, and more. The business is thriving, yet it’s still very much in the evolutionary stage (like all revolutionary businesses) so ANYTHING is possible. To me, that’s exciting.
For the record, revenues grew 86% in 2012 (slowing from triple-digit growth in the two previous years) while earnings grew 154%, following growth of 59% and 633%.
Here’s some of what I wrote about LinkedIn (LNKD) when I named it Stock of the Month last November.
“Long ago, if you were looking for a job, you looked in the newspaper. Then in the late 1990s, Monster.com burst upon the scene, using the Internet to connect workers with jobs far more efficiently than any paper-based medium. It was a great stock—for a while. But Monster Worldwide (MWW) is hitting all-time lows these days, because LinkedIn is eating Monster’s lunch.
“The reason: While Monster focused mainly on jobs, LinkedIn focuses mainly on the people in a professional network, and on giving them the tools and connections that enable them to do their jobs better. And it allows companies to find the talent they need! As a result, LinkedIn, which was launched in 2003, is now the largest professional network in the world, with more than 187 million members.
“Like many networks, LinkedIn is free for any professional to join; in fact every addition of a new individual makes the network more valuable, so LinkedIn encourages this. But the real money for the company comes from users who pay for extras. The number one extra is “Talent Solutions,” which accounts for roughly 55% of the company’s revenues and is used by companies large and small. Here at Cabot, we have used the service several times to hire high-quality professionals, both local and remote. Big companies, including 85 of the Fortune 100 and many professional recruiters, buy “seats” that cost $8,000 per year. The number two extra is “Marketing Solutions.” As on Facebook, these are basically ads targeted to users. And number three is Premium subscriptions, which give users more tools and connections to do their jobs better.
“The stock will be viewed as expensive by some investors, with a market capitalization that’s roughly 10 times trailing 12-month revenues. But we never let valuation stop us from investing in great growth stocks. If you do, you’ll miss some great ones!
When I recommended it last November, LNKD was trading at 107, and I described a very high-potential technical setup whose main features were an IPO in the previous year, followed by a long base and an imminent breakout to new highs.
Well, the stock DID break out to new highs in February, and investors who followed my original advice are now looking at gains of 83%. If you’d like to join them, you can find more info here.
And if you’d like to invest in LNKD here, I encourage it. The long-term future for the company is as bright as ever, and while the short-term chart isn’t quite as promising as when I originally recommended the stock, it’s still positive. The stock hit a new high of 205 last Thursday on good volume and has pulled back slightly since. The main trend is up, and I think buying around 190 could work out well. More info.
By Timothy Lutts, Editor of Cabot Stock of the Month
From Cabot Wealth Advisory 1/28/13 Sign up for free Cabot Wealth Advisory e-newsletter
“Long ago, if you were looking for a job, you looked in the newspaper. Then in the late 1990s, Monster. com burst on the scene, using the Internet to connect workers with jobs far more efficiently than any paper-based medium. It was a great stock—for a while. But Monster Worldwide (MWW) is hitting all-time lows today, because LinkedIn (LNKD) is eating Monster’s lunch.
“The reason: while Monster focused mainly on jobs, LinkedIn focuses mainly on the people in a professional network, and on giving them the tools and connections that enable them to do their jobs better. As a result, LinkedIn, which was launched in 2003, is now the largest professional network in the world, with more than 187 million members.
“Like many networks, LinkedIn is free for any professional to join; in fact every addition of a new individual makes the network more valuable, so LinkedIn encourages this. But the real money for the company comes from users who pay for extras. The number one extra is “Talent Solutions,” which accounts for roughly 55% of the company’s revenues and is used by companies large and small. Cabot has used the service several times to hire high-quality professionals, both local and remote. Big companies, including 85 of the Fortune 100 companies and many professional recruiters, buy “seats” that cost $8,000 per year. Number two is “Marketing Solutions.” As on Facebook, these are basically ads targeted to users. And number three is Premium subscriptions, which give users more tools and connections to do their jobs better.
“All three of these revenue generators are growing fast. Revenues from Talent Solutions were up 95% in the third quarter vs. a year ago, revenues from Marketing Solutions were up 60% and revenues from Premium Subscriptions were up 74%. The result was third quarter revenue growth of 81%, which is a very big factor in the stock’s selection as Cabot Stock of the Month.
“Other facts: LinkedIn is available in nineteen languages, and 63% of members are located outside U.S. so this is a truly global company. Now, the stock will be viewed as expensive by some investors, with a market capitalization that’s roughly 10 times trailing 12-month revenues. But we never let valuation stop us from investing in great growth stocks. If you do, you’ll miss some great ones!
“And that brings us to one of the biggest reasons for recommending LinkedIn today. As Cabot Market Letter editor Mike Cintolo wrote in June, “among liquid stocks (more than $50 million in daily trading volume), there are only 12 that have enjoyed triple-digit revenue growth during the past two quarters, and only 12 that have earnings growth projections as high as LinkedIn (up 94% this year, up another 79% in 2013—both numbers probably conservative). And LinkedIn is the only stock that combines the two! Yes, the valuation is high, but the stock is truly unique merchandise for institutional investors; if the market strengthens, institutions could swarm here.”
“Finally, we get to the chart. LNKD came public in May of 2011 at 45, and peaked that week at 123. (That’s the opposite of Facebook’s behavior, which is not to say that Facebook is a bad company, but that the company was too famous and too well-regarded when it came public). And in the 18 months since, LNKD has never been able to break cleanly above that 123 level—even while growth metrics have been stratospheric! In recent months, however, the stock has begin to tighten up, which tells us those institutions are slowly accumulating shares, working to acquire their positions before the eventual breakout. We recommend that you do the same.”
Back in the present, LNKD broke out above resistance at 125 this morning and may finally be on its way. If you want, you can buy now and try to hold forever. It could be the next Apple!
By Michael Cintolo, Editor of Cabot Market Letter and Cabot Top Ten Trader
From Cabot Wealth Advisory 8/27/12 Sign up for free Cabot Wealth Advisory e-newsletter
I like what I see in the current environment. The market actually bottomed back in early June, but anyone who tried buying strength for the six or seven weeks following that low was burned. In my mind, what really transpired was a prolonged bottoming process, where the indexes chopped around (there were an incredible nine swings, both up and down, of at least 4% in the Nasdaq from that June low until the end of July!!) as money very slowly rotated from defensive stocks (tobacco, big telecom) into more traditional growth areas (chips, networking, software, retail, etc.).
That said, I am not super-bullish right now; while enough leadership has emerged to carry the market higher, I wouldn’t say the advance is overly broad. And there still hasn’t been the type of power in the market that commonly characterizes strong advances. Sure, some of that is likely due to the calendar (I’m pretty sure most big investors will be on the beach this week), but it would warm my heart to see some huge-volume advances.
Even so, I am not souring on the market—if anything, the advance has picked up a little steam as the sellers have run out of ammunition. So now the job is to identify the stocks with the best upside potential. One name that I’m still intrigued by is LinkedIn (LNKD), a stock that hasn’t yet joined the ranks of leadership, yet has all the makings of a big winner.
The company is one of the few out there today that is revolutionizing an entire industry (recruiting and hiring); this isn’t some mild improvement over Monster.com but a totally different way for companies to find the talent they need. LinkedIn has quickly grown into a good-sized firm ($724 million of annual revenue during the past four quarters) thanks to quarter after quarter of 80%-plus revenue growth.
Plus, it’s not just the recruiting business that’s booming for the company—LinkedIn also makes good money in premium subscriptions and advertising, as it aims to make its website a professional portal of sorts. The number of unique visitors grew to 106 million in the second quarter, up from 103 million the prior quarter and 82 million the year before. It’s a similar story with total page views, which numbered 9.3 billion in the second quarter, up from 7.1 billion a year ago. All of that traffic is attracting advertisers, who wish to sell to a very defined, targeted audience.
All together, analysts see earnings totaling 63 cents per share this year (up 80%) and $1.31 in 2013 (up 108%) and, if you want to look very far into the future, $2.15 in 2014.
Yet the stock hasn’t gotten going yet! Why? I think a lot of it has to do with the horrid performance of Facebook’s stock, which has been cut in half since its first day of trading. A lot of investors imagine a link between Facebook and LinkedIn, seeing both as poster children for the recent wave of Internet IPOs. (It isn’t helping that smaller IPOs like Zynga and Groupon are also heading south.)
But, logically, there’s no real link between Facebook and LinkedIn; one is social media, while the other is revolutionizing a humongous industry. And, of course, one is growing rapidly and exceeding analyst estimates every quarter, while the other has slowing growth and its future strategy (especially with mobile advertising) is being questioned!
Technically, LNKD has been basing since early May, but what I really like is how the stock has finally, after a lot of wide-and-loose action, tightened up–shares have pulled back calmly since gapping higher on earnings in early August, have found some support around 100 and have begun to perk up. If you don’t own any, I think you could nibble here and look to add shares on a powerful push above 115.
Oh, and one more thing—don’t worry about the stock’s huge valuation (215 times current earnings!). Yes, it’s expensive, but it’s clear the company isn’t trying to maximize its bottom line right now; instead, it’s focusing on expanding services and digging a deeper moat to keep out any potential competition. Long-term profit margins, which currently are in the high single digits, could easily double, and revenues are growing like mad. As I wrote above, I think institutional investors will be willing to pay up for a piece of a truly unique company like LinkedIn.
P.S. Mike Cintolo is VP of Investments for Cabot, as well as editor of Cabot Market Letter, a Model Portfolio-based newsletter of the best leading growth stocks in the market. Mike took over the Market Letter at the start of 2007, and since then he’s beaten the S&P 500 by 8.5% annually thanks to top-notch stock picking and market timing. If you want to own the top leaders in every market cycle, be sure to give Cabot Market Letter a try by clicking HERE.
By Michael Cintolo, Editor of Cabot Market Letter and Cabot Top Ten Trader
From Cabot Wealth Advisory 4/12/12 Sign up for free Cabot Wealth Advisory e-newsletter
I’m not eager to do much buying here; I think the short-term could be rocky, and earnings season is just getting going, layering more uncertainty. Still, when putting together my watch list, I’m focusing on names with great growth that are still acting properly.
One of them is LinkedIn (LNKD), the fast-growing professional social networking site that sports a sky-high valuation … but also has huge sales and earnings growth and even bigger potential down the road. Here’s what I wrote about the stock in Cabot Top Ten Trader back on March 26:
“LinkedIn is a leader in the new wave of social media Internet stocks. The company is basically Facebook with a suit and tie–the company’s 150 million-plus members use LinkedIn as an online Rolodex, and because of that, it’s emerging as one of the best ways for companies to find the talent they’re looking for. Thus, the whole job-seeking industry is being turned on its head—instead of companies advertising job openings and individuals having to make the first move, companies can now take the lead, finding the people that could fit best … even if they’re not looking for a new job! LinkedIn’s largest and fastest-growing revenue source is from its hiring solutions segment, where companies pay for the tools to successfully mine its database. Advertising and paid subscriptions make up the rest of revenues, and both of those are growing rapidly, too; efforts by the company to make itself something of a professional portal, where relevant business articles and ideas are presented on a user’s page, have resulted in vastly increased traffic. Of course, investors are already excited about the concept—LinkedIn has a lofty valuation (about $10 billion, compared to just $522 million in revenue during the past year), but the triple-digit revenue growth and healthy earnings estimates (up 80% this year, and another 73% in 2013) make this one of the top “glamour” stocks in the market. If management continues to make the right moves, this company could go far.”
At that time, LNKD was hovering just over 100 per share after a jazzy analyst upgrade on the shares. It then pulled back into the high 90s on very light volume … impressively light considering the market’s wobbles. And then it surged higher today on some positive analyst commentary.
However, after a terrific advance in recent months (60 to 106!) this stock has earned a breather and my guess is that shares won’t simply explode higher from here. It might even build out a new base. I think LNKD is one to keep on your watch list, though, as the huge-volume accumulation during the stock’s January-through-March advance, the quiet retreat in recent weeks and the huge potential for its business all suggest the stock could be a big winner.
If you really want to nibble, try to get shares around 100 or below, but keep a stop around 89 if you do so. For me, I’m content to just watch it for now, giving it room to wear out some weak hands.
For more information on Cabot Top Ten Trader, click here.
By Elyse Andrews, Editor of Cabot Wealth Advisory
From Cabot Wealth Advisory 5/21/11 Sign up for free Cabot Wealth Advisory
Investors have been anticipating the IPOs of many major social media companies for a couple of years now and finally got their first taste of how the industry will fare on the open market with the debut of LinkedIn (LNKD) on Thursday.
The company originally priced its IPO at $32-$35 per share, but raised that to $42-$45 on Tuesday because of growing demand for the stock. It ended up selling 7.84 million shares on Wednesday night at $45 each. That put LinkedIn’s valuation around $4 billion (the previous price had it around $3.3 billion).
Not only did the IPO price much higher than expected, but the stock shot up 110% in its first day of trading on Thursday to close at 94! That effectively doubled the company’s valuation in one day, bringing it to around $9 billion.
LinkedIn isn’t as big a name as social media behemoth Facebook, but the professional networking site does boast 102 million users (to Facebook’s 500 million). LinkedIn, which was founded eight years ago, only made $15.4 million last year.
So why did investors value it so highly? Because of its perceived value in the marketplace and future potential to become as big or even bigger than Faceook, but in the career-building space.
LinkedIn does have three revenue streams: online advertising, premium subscriptions and charging business for recruiting tools that should help build the company’s bottom line in the future. But will they be enough? It’s too soon to tell and you’re best off watching the chart to see how it trades in the coming weeks and months.
How LinkedIn performs in the stock market could be an early indication of how other social media companies, like Groupon and Twitter, will do when they come public. And many analysts saw LinkedIn’s debut as a very bullish sign.
LinkedIn’s story is a good one and it certainly wowed investors this week, but at Cabot, we generally do not advise buying stocks that have just had their debut. We like to see stocks get a little trading history behind them before jumping on board and with LinkedIn’s numbers still lacking, we’ll need to see some improvement in that area as well. This is definitely one to watch and possibly revisit once it gets a little more mature.