Thursday, May 19, 2011

LinkedIn Investors Bank On Growth

By Eric Jackson
RealMoney Contributor

5/19/2011 12:15 PM EDT
Click here for more stories by Eric Jackson

I'm amazed that LinkedIn (LNKD - commentary - Trade Now) has more than doubled in value so far today. I wouldn't have bought it at $45 or $35. Congrats to the backers, insiders and institutional flippers.

The best analysis I've seen on why people are buying LinkedIn is from Henry Blodget, who argues that investors are betting LinkedIn is the next OpenTable (OPEN - commentary - Trade Now).

I think he's right. What is the connection?

OpenTable is valued based on the platform that it is growing and the future profits that it will garner from that platform.

The platform is all the restaurants that sign up for the service. Those restaurants pay a set-up fee and an annual fee. The more that sign up, the more profits that flow to the bottom line.

OpenTable currently has 20,000 restaurants signed up. The company is doing about $130 million in annual revenues.

For LinkedIn, the company doesn't have restaurants; it has corporate clients -- headhunters and large companies that constantly need to hire people -- who pay an annual subscription fee.

At the moment, LinkedIn has about 3,900 of these clients. They are going to do about $400 million to 500 million in revenue this year.

Although I've criticized LinkedIn for lacking profitability and having bloated up its sales, product and general and administration costs in the past 12 months, the one area where the business has seen enormous growth is in corporate clients, making up 43% of its current revenue (up from 23% a few years ago). This is great revenue for LinkedIn -- much better than ads on its site and premium subscriptions to individual users to see who looked at their profiles in the last five days.

The folks buying up LinkedIn today think that the company will grow this significantly in the years ahead. Lots of companies out there need to hire folks.


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