LinkedIn is one of the most richly-valued public companies in the world. Perhaps its valuation would come back if it wasn’t so stubborn in delivering earnings beats, as it did in the top and bottom line.Here are the key takeaways:
- Just an excellent business: LinkedIn’s revenue mix is very well balanced (it used to be one third/one third/one third but the hiring business is growing like gangbusters so the latter is now over half). On distribution, half of revenue comes from field sales and half from online sales; in other words half from large enterprises and half from small businesses, which is great. LinkedIn is still in “investment mode” (as it should be given the scale of the opportunity) so earnings are low (though the company is solidly profitable), but EBITDA margins have held pretty steady around 20%.
- Lots of revenue growth left: Without accounting for user growth (of which more below), avenues of revenue growth for LinkedIn are massive. 64% of LinkedIn’s revenue comes from the US. Meanwhile, LinkedIn’s audience is more than half international. This means that LinkedIn has a lot of revenue growth left to capture as it starts monetizing other regions. LinkedIn is also severly undermonetizing its subscriptions and marketing businesses. Other networks like Xing and Viadeo sell premium subscriptions to around 10% of their users, versus less than 5% for LinkedIn. Ads on LinkedIn are of the small, text-only variety, instead of the more profitable graphical ads it could be selling against its premium audience.
- The power of disruption: LinkedIn is a textbook case of technological disruption. Business Insider’s Vivian Gang interviewed a recruiter who explained that LinkedIn has “destroyed” the recruiting industry. The painful and time-consuming relationship-building work that recruiters used to do can now be done much more cheaply and conveniently with software on LinkedIn. History teaches us that truly disruptive companies tend to do very well.
- The power of network effects: LinkedIn is a network, and so has network effects, which suggests that it should keep growing its userbase super-linearly.
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