LinkedIn boosted by recruiting products

2 Nov, 2012

LinkedIn surpassed Wall Street expectations for its third-quarter earnings, reporting a leap in profits and revenues that sent its shares up more than 7 per cent in after-hours trading.

The professional social networking company's business model, and by extension its stock, continues to yield results substantially stronger than its social networking rivals Facebook and Zynga whose stocks have dropped since their market debuts.

LinkedIn reported revenues of $252m and earnings per share on a pro forma basis of 22 cents, above analysts's estimates of $244m in revenue and 11 cents in earnings per share. Net income was $2.3m.

Sales were driven by the company's recruiting products, which allow employers to access detailed information in the network's vast bank of member resumes and work histories. Revenues from the company's talent solutions division totalled $138.4m, an increase of 95 per cent compared to the third quarter of 2011. It now represents 55 per cent of the company's business.

Advertising sales rose 60 per cent to $64m, representing a quarter of overall revenue, while premium subscription sales rose 74 per cent to $50m, a fifth of overall revenue.

LinkedIn's business growth has surpassed that of Facebook, whose revenue growth has slowed in recent quarters, then remained flat in the last quarter at 32 per cent. Though the two companies are often referenced together because they are both social networks, they have significantly different business models.

Facebook's monetisation strategy centres on the creation of a brand new kind of social advertising that many investors approach with scepticism and confusion.

LinkedIn, on the other hand, relies mainly on monthly and annual contracts with employers, a reliable sales model that investors are familiar with.

LinkedIn continues to echo other social networks in product development. In the last quarter, it added several new features that mimic existing functions on Facebook and Twitter, including a new "notifications" feature that alerts users of new content on the site and the ability to "follow" well-known figures, like Richard Branson and Barack Obama.

"The last few months mark the most significant period of product development in the company's history," said Jeff Weiner, LinkedIn's chief executive.

The redesign and simplification of the company's homepage, along with a string of new features, are intended to increase engagement on the site. The company already saw a 60 per cent increase in traffic to the homepage in the third quarter, as well as a jump in the rate of users editing their profiles and commenting on posts.

Steve Cadigan, vice president of talent, said that the increased engagement from users has already driven sales of premium subscriptions. Executives expect a similar trend in all revenue channels of the business.

For the fourth quarter, LinkedIn is expecting to generate revenues between $270m and $275m. The costs associated with the July security breach, in which 6.5m members' passwords were compromised, will be realised mainly in the fourth quarter. For the full year the company estimates revenues between $939m and $944m.

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