Amid the anger and dismay of disappointed Facebook investors, along with the underwriters embarrassment, LinkedIn has come into spotlight. Like Facebook, this social-media platform for professionals has steadily built up a profitable and growing business. Both have managed to achieve what not many social sites have – by building a community of users who interact with each other. The two sites leverage their users’ personal data of to generate revenues. Both incidentally are considered proxies for probably the hottest new trends in technology.
LinkedIn also has faltered after its initial frenzy in the stock market. After nearly doubling on its debut, the stock had gradually drifted down, having almost halved before rallying back to the previous highs even as Facebook investors are hoping for a similar rebound in the next few months. However, many are betting that the stock will go below $22 by the end of this year. Yet, such acute investor disenchantment hasn’t spread to other web stocks except Zynga because its revenue heavily relies on fortunes of Facebook.
But why anxious investors would like to return to LinkedIn even when its PE is quite higher than that of Facebook. One reason might be that they are looking at a few key metrics, which indicate more growth than the latter was promising even before its lower guidance (unofficially). Its revenue increased 45 percent to $1.06 billion in the quarter ended March 21, whereas that of LinkedIn’ rose (101 percent to $188 million) more than twice as fast. An insightful news report in The CNN Money by Kevin Kelleher points out:
“That might look like an apples-to-oranges comparison, because Facebook’s revenue in the most recent quarter was 5.7 times that of LinkedIn’s. But consider two things: First, that only one year earlier, Facebook’s revenue was 7.7 times that of LinkedIn’s. So in the space of one year, that gap has narrowed significantly. As Facebook begins to face limits to its growth in the next year or so, the ratio could shrink even more.”
Secondly, though LinkedIn is considerably smaller, it is already drawing more money per user than Facebook ($1.83 for each monthly user as compared to $1.17 that of Facebook). The number of monthly active users on LinkedIn grew an impressive 37 percent to close to 13 million over the past one year. The number grew 33 percent at Facebook. But LinkedIn is apparently doing a far better job in terms of revenue from each user something that investors and analysts need to know.
LinkedIn does make more money from its each users even if he or she doesn’t spend long hours on its social network. (it’s just 17 minutes per month by one count.) However, it has succeeded in mining those minutes for all that they are worth – not through serving of ads, rather through premium subscriptions and job postings that account for 54percent and 20percent, respectively, of LinkedIn total revenue. Display and other ads, on the other hand, account for merely 26percent of LinkedIn revenue.
To put the whole thing in perspective, ads account for 82 percent of Facebook overall revenue. And that is the real ‘apples-oranges’ difference between LinkedIn and Facebook that heavily relies on advertising. Even though it has done a better job when it comes to wringing ad revenue from users than those of MySpace, it is still primarily a social media company. What this means is that people come on Facebook for the content, but they do not necessarily click on the ads. So it is not surprising that General Motors is disenchanted with the site.