As with every stock, the price is set up accounting future earning potential of the company. Linkedin forecasted a soft guidelines for the upcoming year which, transitively, forecasted the earning for the future year.
TL;DR: they cut future growth in a half, they are still losing money.
Why did it went up from $50 in 2012 to $270 in 2015? Then perhaps they missed all the projection and all the models that implied they succeeded no matter what.
The company said it expects adjusted earnings of 55 cents a share in the first quarter on revenue of $820 million, and $3.05 to $3.20 a share for the year on revenue of $3.6 billion to $3.65 billion. Analysts surveyed by FactSet had estimated 75 cents a share on revenue of $868.3 million for the first quarter, and $3.70 a share on revenue of $3.91 billion for the year.
So basically analysts (which are usually conservative), predicted $3.70 Earnings per share, but Linkedin says they will make $3.05-3.20. Revenue was predicted to be $868m in the future, Linkedin says they will make $820m. What will it happen if they miss those estimates?
Revenue growth implied in those estimates is 20-22% (and not 40% as projected).
LinkedIn is still growing at a dramatic rate given the size, but the company has to improve its value proposition. Growth could mean increasing one or more of the three things: # of members, user engagement, and revenue.
User Engagement
It’s no secret that LinkedIn lags in engagement behind the other major social networking platforms. While LinkedIn has about 100M monthly active users, Twitter has 320M monthly active users and Facebook has over 1B daily active users.
How can LinkedIn increase user engagement? By putting members first — that is, by focusing on the value that LinkedIn members derive from the platform, rather than on the value that LinkedIn’s enterprise customers derive from members.
A great example is the news feed. It’s no accident that Facebook’s news feed is much higher quality than LinkedIn’s. Both companies use machine learning systems to determine what to show their users. But Facebook explicitly focuses on quality, rather than simply counting clicks. Moreover, this is an area where they iterate relentlessly. In contrast, LinkedIn’s news feed is a cesspool of content marketing. If LinkedIn wants more of its members to engage with the news feed — which will in turn help the machine learning algorithms do their jobs — then the company has to look at feed relevance from the consumer’s point of view, rather than framing relevance as a targeting problem for marketers.
In general, the way to increase user engagement is to build products that people love. Recruiters, salespeople, and other outbound professionals love LinkedIn, but they represent a small fraction of LinkedIn’s user base. If LinkedIn wants to significantly increase engagement, it will have to build products with a strong appeal beyond outbound professionals.
There are many ways LinkedIn could broaden its appeal. It could build on Lynda.com as a professional learning platform to tie accomplishment and skill acquisition to career advancement. It could develop a best-in-class aggregator of personalized industry news – which was the original vision of LinkedIn Today. It could serve as a member-centric source of information about companies, i.e., a better Glassdoor. And so on. The challenge for LinkedIn isn’t coming up with product ideas that would increase the value it provides to members. Rather, it’s making the philosophical and business decision to put members first, and then focusing on a way to implement that decision.
Revenue
LinkedIn made just shy of $3B in revenue in 2015 and is projecting $3.6B for 2016. This outlook is what spooked investors, causing the company to lose 43% of its value in one day despite beating its quarterly expectations. Investors expected a significantly higher forecast. LinkedIn has a diversified revenue stream which can be summarized as hire, market, sell. But the dominant contribution to that stream is hiring solutions. Hiring solutions represented 60% of LinkedIn’s revenue in 2015, as compared to about 20% each for marketing solutions and premium subscriptions.
This distribution suggests two strategies for growing revenue. The first is to increase the diversity of revenue beyond hiring, instead focusing on sales and marketing. The second is to double down on hiring. LinkedIn has largely been following the first strategy, releasing products like Sponsored Updates for marketers and Sales Navigator for salespeople. These products are gaining some traction, but it’s not clear how long it will take for them to deliver enough revenue to impress the street.
Despite LinkedIn’s being a category leader in the hiring space, it has huge holes in its product offering. It doesn’t offer its own solutions to address applicant tracking, compensation, performance management, etc. Beyond not being comprehensive, LinkedIn’s hiring solutions have suffered from the company’s complacence as a market leader. Better targeting — as well as better economic incentives — could improve response rates for recruiters as well as reduce the amount of unwanted recruiter attention received by a highly targeted minority of the member base. There’s also a huge opportunity to integrate Lynda.com into hiring solutions by creating certifications that employers actually value.
Most importantly, LinkedIn can’t afford to be complacent in this space. Startups see hiring as ripe for disruption, notably Hired, which is on track to a $100M annualized run rate. In any case, I believe that LinkedIn could dramatically improve both the comprehensiveness and the quality of its hiring solutions, and that doing so is its best path to growing revenue in 2016 and beyond.
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