LinkedIn: The Ugly Duckling of Social Media

February 27, 2013, 7:58 p.m. ET

LinkedIn: The Ugly Duckling of Social Media


Shares of Facebook Inc., FB -1.90% Zynga Inc. ZNGA +4.76% and Groupon Inc.GRPN +7.78% tanked after their rocky stock-market debuts. But LinkedIn Corp.’sLNKD +6.83% stock is still soaring, closing at an all-time high of $168.55 on Wednesday.

That may be because of people such as Chris Hoyt, who helps manage recruiting forPepsiCo Inc. PEP +0.53% Mr. Hoyt said the beverage maker has ramped up its spending on LinkedIn over the past three years by paying for job ads, career pages and a recruiter talent finder. The professional-networking site has become one of PepsiCo’s main sources of job candidates.

“There’s one tool consistently used across the board, and that’s LinkedIn,” said Mr. Hoyt. He declined to say how much PepsiCo spends on the site, but said he pays LinkedIn through an annual contract and will bulk up the contract with additional services—such as if PepsiCo has special recruiting initiatives—as needed.

Mr. Hoyt’s willingness to increase spending on LinkedIn helps explain why the Mountain View, Calif., company is now valued at north of $18 billion, up from $4 billion when it went public amid a wave of newfangled Web companies in May 2011. The market capitalizations of Facebook, Zynga and Groupon, in contrast, are all down by 25% to more than 60% since their initial public offerings.

LinkedIn was long an ugly duckling of social media. Investors puzzled over its hybrid consumer-and-enterprise business model, which depends on attracting consumers but selling services mainly to businesses, and its focus on the less-flashy world of professional connections.

But those same factors are what has kept the company in Wall Street’s good graces even as Facebook, Zynga and Groupon have flailed amid concerns about how they are at the whims of fickle consumers.

Now LinkedIn is trying to give corporate customers—which generate more than half its $972 million in annual revenue through its “talent solutions” business—more reason to pay. It is testing corporate ads that serve content such as articles or status updates to LinkedIn’s users.

LinkedIn also is pushing into content by aggregating business news and hosting expert blog posts, to give professionals more reasons to linger on the site. The more active its members, the more ads LinkedIn can sell and the more data it garners for its corporate customers’ hiring and recruiting needs.

In its most recent quarter, LinkedIn said page views rose 67% from a year earlier, the company’s highest growth rate in 2012. Data from comScore shows that LinkedIn has bounced between 40 million and 43 million U.S. unique visitors since August.

LinkedIn released several content-related products last year, such as an updated home page and news feed and a new publishing platform for “influencers” like Virgin Group’s Richard Branson, all geared toward keeping users on its site. LinkedIn said it has rolled out more significant changes to its site in the last two quarters than the six previous quarters combined.

The pressure is on for LinkedIn to keep growing, especially as its stock values the company at 18 times 2012 sales, far above other publicly traded Internet companies.Google Inc. GOOG +1.22% trades at more than five times sales, while Facebook trades at more than 12 times sales.

Northland Capital and Barclays BARC.LN +1.62% this year have downgraded LinkedIn’s stock on valuation concerns. LinkedIn’s sequential quarterly user growth declined to single-digits, 8%, in the second quarter of 2012 for the first time since 2009, and has hung at that rate. As of the end of last year, LinkedIn said it had 202 million members.

And some people are skeptical that LinkedIn will succeed in becoming more of a publisher, which pushes the company more directly into competition with players like Facebook and Twitter Inc.

“We think the market is giving them a lot of credit for early days,” said Mark May, of Barclays. “They have to get it all right at these levels.”

Still, some of LinkedIn’s recent push appears to be paying off. The company’s three primary revenue streams—ads, its talent-solutions business and premium consumer subscriptions—continue to grow quickly. Talent-solution sales to recruiters at companies like PepsiCo are jumping fastest of all, up 90% from a year earlier.

LinkedIn this month reported its seventh straight quarter of above-expectations sales, with an 81% revenue jump to $303.6 million. While sales growth has slowed since mid-2012, LinkedIn’s revenue growth is outpacing that of Facebook, Zynga and Groupon.

Sebastian Siemiatkowski, the CEO of Klarna, a Swedish online payments company with about 800 employees, says he presses his recruiters to spend more time on LinkedIn because its pool of candidates is so large and résumés tend to be more actively fleshed out and updated versus rival job sites and social networks. And whileMonster Worldwide Inc. MWW +1.59% and other traditional career sites match active job seekers with openings, LinkedIn specializes in connecting companies with people who may not be looking for a job.

Two years ago, Klarna had one premium subscription account with LinkedIn, belonging to Mr. Siemiatkowski. Now it pays for roughly five LinkedIn “recruiter licenses,” which are specialized accounts for recruiters, for its human-resources department. It also has several premium subscriptions for its 200-person sales team, with the total tab in the thousands of dollars, Mr. Siemiatkowski said.

Phil Hendrickson, manager of global talent-sourcing strategy for Starbucks Corp.,SBUX +2.42% said he was uncertain how LinkedIn’s content push would affect Starbucks’ use of the site.

Mr. Hendrickson, who declined to disclose how much Starbucks pays LinkedIn for its services, said the Seattle company nonetheless has ramped up spending on the site by paying for ads and hiring services, such as a tool that helps Starbucks keep track of its interactions with potential recruits.

Several years ago, LinkedIn mainly was used by Starbucks executive recruiters who were looking to fill senior positions. Now it is also used to fill lower-level jobs.

“Originally it was seen as your mom’s or your dad’s network” Mr. Hendrickson said. “Now it also has more young professionals and college-level folks.”

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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