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Text of The Bull and Bear Case for LinkedIn
The Bull and the Bear case forThe Worlds Largest ProfessionalNetwork
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 worlds 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.
Household income of LinkedIns US Members istwice the average.Source: LinkedIn
Nearly 150 million members are outside the US.Source: LinkedIn
Used by 50% of Fortune 100 Companies.Source: LinkedIn
LinkedIn has three revenue sources:Source: 10-Q for Periodending 3/31/13.
The Bull Case for LinkedIn Hyper-growth in all areas.
Adding Over 2 new members every second.Hyper-growth in all areas.
Sales have risen at a compound annual growth of 95% over last 2 years.Hyper-growth in all areas.
In last 2 years, number of corporate customers has also increased at a compound annual rate of 95%.Hyper-growth in all areas.
The Bull Case for LinkedIn Profitability has been growing since IPO in May, 2011.
TTM gross margin has grown to 87.1%.Profitability growing.
TTM CFO has dwarfed TTM net income.Profitability growing.
Growth in TTM CFO/share accelerated to 104% during the last 12 months.Profitability growing.
TTM FCF/share has been positive since the IPO and is growing.Profitability growing.
The Bull Case Market potential is substantial.
LinkedIn is just getting started. CEO Jeff Weiner estimates its immediate addressable market is $27 billion;long-term its $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.
The Bull Case Bold enough to manage for the future even in the early days.
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.
Talent solutions revenue per customer now at all-time high and growing.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.
The Bull Case Expanding internationally and sales per employee higher than in US.
More members outside US than inside Two-thirds or about 150 million membersare outside the US, showing internationalappeal. LinkedIns site is now available in 19languages.Expanding internationally.
International sales per employee continue to outpace domesticsales per employee.Expanding internationally.
The Bull Case Stickiness + Innovation.
Capturing members attention. Blogs from "Influencers. Virgin FounderRichard Branson has 1.9 million followers. Pulse. A recently acquired the popularnewsreader for the web and mobile.Very innovative.
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.
LinkedIn Actively Encourages Employees to Innovate It has a program called the "Incubator." Employees pitch ideas and thoseaccepted are assigned importantmentors, including Reid Hoffman.Very innovative
The Bull Case Managements wealth tied up in LNKD stock.
Managements wealth is heavily tied up in LNKD stock.Management feels your pain.Market value based on 5/31/13 closing price and amount of super-voting Class B stock held.
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.
The Bear Case Growth rates are slowing in all areas.
Member growth has slowed. Last year, growth averaged 8% vs. peak of 14% in 2011.Growth rates are slowingin all areas.
Sales growth peaked in the first full quarter after the IPO and has fallen ever since.Growth rates are slowingin all areas.
Rate of growth of corporate customers has been steadily declining.Growth rates are slowingin all areas.
The Bear Case Reputation depends on increasing membership and members completing and updating their profiles.
In the drive to increase membership, little information is required