Investors this year have treated LinkedIn as a can’t-miss goldmine, snapping up the stock on dips, rallies and anything between. Shares surged a whopping 83% in 2013′s first four months, creating a stock-market monster with a price-earnings multiple of more than 1,000. It’s hard to keep that mania going for long — as investors found out when the careers-minded social network this afternoon provided its 2013 growth outlook.
Get ready for revenue growth of 50% to 52% in the second quarter, LinkedIn told investors, with full-year 2013 revenue climbing 47% to 50%. Most companies can only dream of such growth rates. But for recent LinkedIn buyers, that isn’t good enough. They pressed the “SELL” button in after-hours trading, sending LinkedIn down more than $20 at one point from its record close of $201.67 a share earlier in the day.
Attention is likely to focus now on how rapidly and profitably LinkedIn can grow over the next three to five years — and on how sober-minded investors should value that growth. In a conference call with investors, LinkedIn’s chief executive officer, Jeff Weiner, and the company’s financial officer, Steve Sordello, rattled off a wide range of ways that LinkedIn keeps growing. Among them:
– Membership grew a record 16 million people in the first quarter and currently tops 225 million people worldwide
– Members’ page views grew 63%, year to year, fueled largely by increased mobile usage
– LinkedIn’s biggest money-maker, its Talent Solutions division, which provides advanced candidate-search tools for recruiters, grew 80% versus the prior year
– Net income more than quadrupled, to $22.6 million, or 20 cents a share, from the year earlier.
Citing comScore data, Weiner said that LinkedIn now ranks as the 22nd most visited web property in the world, if the company’s core site and its SlideShare unit’s traffic are combined. That’s a huge leap from a few years ago, when members seldom visited the site once they had built their profiles. LinkedIn has been busy building up its own web content, adding contributors such as former General Electric CEO Jack Welch and lifestyle expert Martha Stewart.
LinkedIn said it is switching this year to a self-maintained data center — a trend that has become popular among major social networks. That switch will add $5 million a quarter to costs this year, Sordello said, but it should generate substantial savings in the years to come.
Sordello and Weiner also voiced optimism about the appeal of LinkedIn’s recently upgraded iPhone application, as well as a doubling in SlideShare’s traffic and a 10% improvement in the company’s sales force productivity.
Another trend worth watching: LinkedIn’s profitability is climbing. The company has invested heavily for growth in recent years, aggressively building its engineering, product development and sales teams. With the benefits of scale, LinkedIn appears to be finding that each additional dollar of revenue doesn’t need to carry such sizable expenses with it — and can contribute more to the bottom line.
While the company posted $22.6 million in net income for the latest quarter, under generally accepted accounting principles (GAAP), its non-GAAP net income (which excludes some stock-compensation expenses) was a heftier $52.4 million. Wall Street analysts generally focus on the non-GAAP number. By that measure, LinkedIn’s price-earnings multiple still is in the hundreds, but not quite so lofty.
Still, as LinkedIn gets bigger, its growth rate inevitably slows down. The company’s year-to-year revenue growth rate topped 100% throughout 2011, but it ebbed to 82% in the fourth quarter of 2012 and 74% in the quarter just completed. Without addressing LinkedIn’s long-term growth rate specifically, LinkedIn CFO Sordello said the company should benefit from the diversity of its offerings and the size of its market opportunity. In addition to seeing LinkedIn as a vital tool for career development and hiring worldwide, the company has been experimenting with ways to use its tools in the even larger sales sector.