LinkedIn Continues to Improve Monetization

Researcher eMarketer expects social media player LinkedIn (Nasdaq:LNKD) to deliver strong ad revenue growth in the coming years. The researcher estimates LinkedIn’s advertising revenues to grow 47% this year to $376 million. By 2015, LinkedIn is estimated to generate $763 million from online advertising. Another comScore report published this spring showed that LinkedIn has become the second largest social network in the world based on the number of unique visitors, surpassing Twitter. The company’s financials have been impressive as well.

LinkedIn’s Financials

LinkedIn’s Q3 revenues grew 56% over the year to $393 million, ahead of the market’s expectations of $384.8 million. Adjusted EPS of $0.39 also shattered the Street’s target of $0.31 for the quarter.

By segment, revenues from Talent solutions grew 62% to $224.7 million. Marketing solutions’ revenues grew 38% over the year to $88.5 million. Premium Subscription revenues grew 61% to $79.8 million.

During the quarter, LinkedIn’s user base grew 38% over the year and 9% over the quarter to 259 million users. It is impressive to note that LinkedIn’s growth in user base has not slowed down. Other social networks, including Facebook, are facing issues in maintaining their previous subscriber base growth percentages. According to comScore’s metrics, monthly unique visitors during the quarter grew 30% over the year to 142 million.

For the current quarter, LinkedIn projects revenues of $415-$420 million, compared with market projections of revenues of $440 million. LinkedIn expects to end the year with revenues of $1.5 billion, in line with market expectations.

LinkedIn Improving User Engagement

LinkedIn continued to look at ways to attract and retain more users. The company is helping professionals build wider networks through features such as endorsements and people a user may know. During the quarter, LinkedIn exceeded the critical mass of three billion total endorsements on its platform. Soon it will introduce additional algorithms to the service to enable delivery of more relevant endorsements.

Through the introduction of advanced algorithms in other content-related features, LinkedIn is also improving the relevance of both sponsored and organic content that is delivered to users. Initial results of these advancements have helped improve click-through rates on these articles by almost 33%.

The company also announced the integration of Pulse with its platform to make Pulse its primary news app. The integration will not only simplify the log-in process, but it will also make sharing of content simpler and seamless. LinkedIn acquired the news reader app earlier this year for an estimated $90 million.

For all social networks, attracting a new user base is critical. During the quarter, LinkedIn opened its platform to students through the launch of University Pages. The service focuses on helping students become more informed about their universities by sharing campus news and activities, asking questions regarding admissions, and connecting with the campus community and alumni. The aim is to help students make more informed decisions about the colleges they wish to attend, the courses they want to sign up for, and the opportunities that they could be looking at following the completion of a degree. Within two months of its launch, University Pages saw more than 1,500 pages across 60 countries.

Growth Through Mobile

Mobile continues to be a fast-growth segment and LinkedIn reported that 38% of its unique visitors come from mobile devices. In certain markets like Singapore and Turkey, LinkedIn is already seeing more than 50% of its traffic from mobile devices.

Last month it announced the launch of a new LinkedIn app for the iPad with features such as expanded search, improved media content, streamlined social features, and sponsored updates. The Pulse app has also been integrated with LinkedIn’s app to deliver a more visual news feed to users.

For iPhone users, LinkedIn launched Intro, a service that integrates LinkedIn profile details into the iPhone e-mail inbox so that users can connect more effectively with their contact lists.

The market is pleased with the company’s performance. The stock is trading at $222.54 with a market capitalization of $25.17 billion. It touched a high of $257.56 in September 2013.

LinkedIn is my favorite company in the social media segment by far. It provides real business value, and it’s a network that improves over time. They have good product marketing to determine how to provide more value, and I believe the company get increasingly better at monetizing its user base, including turning a larger number of the users into paying subscribers. At the end of the day, subscription is the most desirable business model for Internet companies, something players like Facebook cannot get to.