LinkedIn Is Cheaper Than You Think

If you thought LinkedIn (NYS: LNKD) was expensive before, check it out now.

Shares of the social networking website operator for white-collared professionals are trading higher today after posting better-than-expected results last night.

Revenue climbed 101% to $188.5 million, making this the seventh consecutive quarter in which revenue has more than doubled. Adjusted earnings soared 191% to $16.9 million or $0.15 a share. Analysts were only expecting non-GAAP profitability of $0.09 a share on $178.6 million in revenue.

LinkedIn shares aren't cheap, but they may never be cheap by conventional standards.

Catherine Baab-Muguira took the company to task two weeks ago, arguing that it was ridiculously expensive at 890 times trailing earnings.

Well, the stock has inched even higher over the past two weeks. However, as of last night, LinkedIn's trailing P/E multiple dropped to 254.

I'm certainly not suggesting that that is a blue-light special, but it's a testament to how time can greatly reshape a stock's valuation when it's growing quickly.

Let's look out a few years. Analysts see LinkedIn earnings $0.54 a share next year, $1.34 a share come 2014, and $1.85 a share in 2015.

I can point out that LinkedIn closed yesterday at only 59 times its projected profitability, but you're smarter than that. You realize that LinkedIn would have to stand still for more than three years to be valued at 59 times trailing earnings. Who would want to buy into that kind of grim scenario?

Then again, who says that analysts will be perched at $1.85 a share in projected income in three years? Did you see how LinkedIn blew analysts away last night? This is exactly what the company has done every single quarter since going public. It isn't even close. LinkedIn has earned 66% to 433% more than what Wall Street pros were targeting.

You would be nuts to bet against that trend. LinkedIn has cracked the code.

Mastering the job interview
There are 161 million professionals on LinkedIn, and this is no longer a stateside affair. A chunky 36% of the dot-com speedster's revenue is now international. This is a far cry from Facebook's 900 million users, but these are movers and shakers that recruiters and advertisers want to reach.

Dice Holdings (NYS: DHX) didn't crack the code. It was building industry-specific communities long before LinkedIn was in business. Dice.com attracts techies. RIGZONE caterers to energy workers. However, a community isn't a social network. Dice is a quality company, but it grew its revenue by just 15% in its latest quarter. It's no LinkedIn.

Monster Worldwide (NYS: MWW) is another company that could've been LinkedIn. The Web-savvy provider of job listings and recruiting services could've installed the spigot that would turn fellow job seekers into gabby referral connections.

It didn't happen.

Waiting on Zuckerberg
In anticipation of Facebook's IPO later this month, investors have occasionally turned to bidding up the shares of publicly traded social networks. The move doesn't always make sense. Renren (NAS: RENN) is arguably the Facebook of China, but it's still two years away from profitability in a volatile market when it comes to social freedoms.

Quepasa (ASE: QPSA) posted encouraging results last night. The company has gone from an operator of a fledgling namesake social networking website for Latinos into a social discovery leader after last year's merger with myYearbook. Revenue for the combined companies climbed 30% over the past year.

However, LinkedIn is the star pupil until Facebook arrives. LinkedIn has now come through with four profitable quarters since going public, and Wall Street was bracing for red ink during the first two periods.

LinkedIn is cheaper than you think. It's not about the trailing earnings multiple dropping substantially overnight. It's not even about LinkedIn fetching 59 times 2015's projected profitability, since that will continue to be a moving target that analysts keep revising if recent trends continue.

The real treat for investors long LinkedIn is that there are a lot of people still believing that LinkedIn is ridiculously overvalued. As long as there as skeptics to slay, LinkedIn will find ways to grow higher through hires.

Green should be the color of your parachute
LinkedIn was recently tapped as a dynamic recommendation to Rule Breakers subscribers. It's time to discover the next rule-breaking multibagger that the newsletter has unearthed. It's a free report. Want it? Get it.

At the time thisarticle was published The Motley Fool owns shares of LinkedIn. Motley Fool newsletter services have recommended buying shares of LinkedIn. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

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