LinkedIn Tightens Member Ties To Lift Earnings

Investor's Business Daily

LinkedIn (LNKD) reported earnings per share late Thursday that doubled Wall Street expectations, helped by a flurry of new features and enhancements to the professional social networking site.

Higher membership and user engagement pushed Q3 revenue to $252 million, up 81% from a year ago. It was LinkedIn's fourth straight quarter of deceleration, but still a fast pace. And it beat consensus estimates of $244.2 million.

Twice As Good

Earnings per share, minus special items, of 22 cents crushed Wall Street's estimate of 11 cents. EPS growth of 267% was LinkedIn's best in seven quarters.

The professional social networking site has 187 million members, up 7% from the 175 million members from the end of Q2.

"The last few months have been the most significant period of product development in LinkedIn's history, driving greater user engagement," said Jeff Weiner, CEO of LinkedIn, in a post-earnings conference call with analysts.

This includes a redesigned home page and other services that have increased the number of times users share or promote postings. LinkedIn also added an endorsement feature that recognizes colleagues for specific skills.

Mobile Focus

LinkedIn is putting more emphasis on its mobile platform, Weiner said. One-fourth of users accessed the site via mobile devices vs. 13% a year ago. LinkedIn also increased support for Apple (AAPL) iPhones and Google (GOOG) Android devices. Monetizing mobile audience is still a work in progress.

The company raised its Q4 revenue guidance to $270 million to $275 million, above its prior estimates of $235 million and $240 million. The $272.5 million midpoint is slightly above analysts' consensus for $270.3 million and would be a 62% increase from the year-ago quarter.

As its third-quarter report showed, LinkedIn has a track record of beating estimates.

"I think they are being conservative on the revenue outlook," said Martin Pyykkonen, analyst at Wedge Partners. "LinkedIn could push the throttle more but they're leaving some room.

LinkedIn shares rose 8% in after-hours trading to above 115.

Unlike social networking giant Facebook (FB), LinkedIn is not so dependent on advertising.

LinkedIn has three sources of revenue. Its largest is Talent Solutions, previously named Hiring Solutions. This group gets fees from companies and headhunters trying to find prospective hires. Revenue from this group rose 95% to $138.4 million from a year ago. That's an acceleration from the prior quarter, when revenue grew 48%. The group accounted for 55% of total revenue in the third quarter, up from 53% in the prior quarter.

"What we have seen is Talent Solutions, whether the economy is good or bad, continues to be popular," said Pyykkonen. On average, he said, companies pay about $8,000 per year for the LinkedIn service.

LinkedIn's second revenue source is Marketing Solutions, which sells ads. Revenue jumped 60% vs. a year earlier to $64 million. That represented 25% of total Q3 revenue, down from 29% a year ago.

Premium Subscriptions charges users for extra features. The group reported revenue of $49.6 million, an increase of 74% and 20% of total revenue.

Revenue from the U.S. totaled $162.4 million, up 73% vs. a year earlier and 64% of total revenue. International revenue doubled to $89.7 million.

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