As Worldwide Invest Better Day approaches, we here at The Motley Fool are profiling dozens of companies that might be worth investing in. Here's a closer look at LinkedIn (NYSE: LNKD) , the world's largest social network for business professionals.
History and overview
Founded in December 2002 by a group of five co-founders, including well-known investor and entrepreneur Reid Hoffman, LinkedIn is usually grouped together with Facebook (NYSE: FB) and Twitter when talking about the world's more popular social networks.
There's a good reason for this. LinkedIn uses the term "connections" to describe how users interrelate on the site. Those connections, and others connected to those connections, create a virtual professional network that can grow to be thousands strong. Such extraordinary reach may explain why some, including Forbes, have called the site an "invaluable social networking tool" for job seekers and career-switchers.
For its part, LinkedIn says members are on track to perform 5.3 billion professionally oriented searches in 2012, up from 4.2 billion a year ago. Meanwhile, the company's Hiring Solutions group, which caters to recruiters, has doubled revenue on a year-over-year basis in 13 consecutive quarters. By contrast, Monster Worldwide (NYSE: MWW) has suffered negative revenue growth in each of the last three quarters.
Today, LinkedIn's 175 million members can be found in more than 200 countries and territories. Roughly 62% of that group live and work outside the United States. The vats of data this active base of users creates has given rise to a variety of new products, including LinkedIn Today, a news site created out of what networked users share, and LinkedIn Groups, for growing networks using areas of common professional interest.
Of all of LinkedIn's businesses, none is so interesting as the aforementioned Hiring Solutions. Here at The Motley Fool, we use it to find "passive candidates," prospective employees who are eminently qualified but not looking for work. To this day our in-house recruiters say LinkedIn is a top three source for new Foolish talent. We aren't alone:
Source: S&P Capital IQ. Dollar amounts in millions.
Hiring Solutions now accounts for more than half of revenue, but marketing solutions (i.e., ad sales) and premium subscriptions (i.e., additional services for job seekers and career-switchers), continue to grow fast despite a high unemployment rate here in the U.S. All signs point to LinkedIn as an indispensible data source for candidates and recruiters alike.
But don't take my word for it. Check the numbers for yourself -- revenue growth is accelerating as margins improve:
Cash / Debt
$577.5 / $0.0
$93.0 / $0.0
$90.0 / $0.0
Source: S&P Capital IQ. Dollar figures in millions.
Here are three other things you, as a potential investor, should take away from this data:
Accelerating revenue growth suggests there's rising demand for LinkedIn's services.
Demand, in turn, gives LinkedIn pricing power, which it appears to be growing: gross margin has improved by nearly 6 percentage points over two years.
With plenty of cash and no debt, management has plenty of room to invest in for long-term growth.
Think about how you invest your own resources. Do you buy what you need at a good price? Do you invest the excess in things that matter, whether for the benefit of yourself, your family, or a cause you care about? Are you careful not to pile up debts you can't pay off? Companies and management teams are subject to these very same tests. LinkedIn's team is delivering.
Care to learn more? There's plenty of source material freely available on the web: