It has already been an extremely tough day for social media stock, with Twitter Inc (NYSE:TWTR) taking an absolute battering in world markets after announcing a loss of over $600 million on Thursday. Thus, it could be the ideal time for LinkedIn Corp (NYSE:LNKD) to announce its earnings, given that the up and coming social media network could present itself as the flavor of the month and Twitter as very much on the way out.
Of course, the situation is rather more complex than that. LinkedIn Corp (NYSE:LNKD) and Twitter Inc (NYSE:TWTR) have a completely different emphasis and tone, and target rather different markets (although many people use both). LinkedIn’s emphasis on delivering professional services and enabling labor to hook up with potential clients and employers is becoming increasingly popular. Making money is a niche that is always likely to be popular.
Certainly the professional contact network has grown hugely over the last twelve months, and analysts believe that the company will exceed its own revenue forecasts when its results are released in the next few hours. While the company projected its revenue for 2013 to be around $415 million, observers of the social media sector believe that its revenue will be significantly higher, around $437 million. This would represent a 44 percent increase over the previous year’s takings.
On the back of this information, LinkedIn Corp (NYSE:LNKD) was trading nearly 4 percent up on its share price today:
But this only tells a small part of its success story. Over the last year, its share price has increased by around 75 percent.
One of the elements which has counted in LinkedIn Corp (NYSE:LNKD)’s favor thus far in the hugely competitive social media market is that it possesses more diverse revenue streams than other big social networks. Aside from Twitter Inc (NYSE:TWTR)’s disappointing year, Facebook Inc (NASDAQ:FB) also previously struggled to justify its initial market cap and it has recently been suggested by a Princeton University study that the brainchild of Mark Zuckerberg might struggle to maintain its prominent position some years into the future, although that study came with several caveats that were later picked apart by the media.
Linkedin’s diverse business model
By contrast, less than one-quarter of LinkedIn Corp (NYSE:LNKD)’s revenue is actually generated from advertisements. This is pretty rare for any Internet-based business, and unheard of elsewhere in the social media strata. LinkedIn also generates significant income by selling recruiting tools to headhunters and human-resources products to companies, and it has been extremely successful in attracting people to sign up for paid subscriptions; something that Twitter Inc (NYSE:TWTR) and Facebook Inc (NASDAQ:FB) can frankly only dream about.
However, now that LinkedIn Corp (NYSE:LNKD) has caught on and become a prominent player in the social media sphere, inevitably attention turns to that perennial issue for any floated company – growth. How can LinkedIn grow its business and can the corporate site attract more users to sign up?
The first thing to note is that the number of users at LinkedIn Corp (NYSE:LNKD) is considerably less important than with other social network sites, as their earnings are not particularly dependent on advertising. Naturally they would welcome more sign ups, but this isn’t as central to their income and growth model as for other social media sites. Nevertheless, LinkedIn reportedly now has 259 million members, which is an increase of 38 percent from twelve months ago. Nonetheless, an ideal scenario for the company would be membership to continue to grow in 2014, with increased time spent on the site per member.
To attempt to capitalize on their growing membership, LinkedIn Corp (NYSE:LNKD) has launched ‘sponsored stories’ which somewhat ape the advertisements in Facebook Inc (NASDAQ:FB)’s news feed. The forthcoming figures will give strong indication of how successful this new initiative has been, as the last accounting quarter was the first one for which figures related to this innovation have been available. Naturally, LinkedIn will be looking for some encouraging news from this new idea, as the market will consider it essential in the company’s growth going forward.
Mobile sector importance
The other area which will be of critical importance to the company in 2014 is mobile. This is generally a massive growth area anyway, but is of particular significance to the social media sector. This is doubly so for LinkedIn Corp (NYSE:LNKD), as it makes about two-thirds of its revenue from selling updates and advertisements via mobile platforms. According to recent comments from Steven Sordello, mobile users are considerably more active on LinkedIn than desktop subscribers, accounting for two-thirds of its overall traffic.
Thus, the short-term prospects of LinkedIn Corp (NYSE:LNKD) look very bright, and one can expect its earnings figures for 2014 to be extremely encouraging. And the site certainly looks to have an original and sustainable business model for the future, which makes it stand out considerably in the social media sphere. But its mid to long-term future will be defined by its ability to penetrate new markets and generate new sources of revenue, given the fact that this has been a perpetual sticking point for other social media sites in the past.