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1.0 Executive
Summary
This paper addresses LinkedIn
Corporation’s performance over the recent years. Based on SEC filings, the company’s
performance since its IPO is analyzed in the report. Among the things analyzed
are the company’s revenue, gross profit, net income, financial ratios, business
model, market stand, IPO success and stock prices. After its IPO, the company’s
revenue has increased. But along with the increase in revenue, expenses have
been surging thus reducing profit margins.
2.0 Company
Profile
LinkedIn Corporation operates as a
corporation, owned by shareholders. The company was established in 2003 by Reid
Hoffman and four others in Mountain View California. The company provides a
web-based site for career management as well as professional networking
activities. The main objective of the LinkedIn application is for the business
to make a profit based on use of the application. In regards to the users, the
main objectives of LinkedIn are to develop a professional network by building a
professional profile, nurturing one’s growing network and generating a
professional reputation.
3.0
Business model[m1] [D2]
LinkedIn earn its revenue from
three sources: hiring solutions, marketing solution, and premium subscriptions.
Hiring solutions revenue is earned by enabling recruiters to search for
potential employees through the site. Alternatively, companies could buy hiring
services from LinkedIn through periodic subscription. Marketing solutions is
basically through selling advertising spaces on its web pages. Lastly, premium
subscriptions are services provided to users who would like advanced profile
capabilities compared to basic level profiles.
4.0 Industry
trends
The
demand for IT services in the US is fueled by rapid technological changes.
Expenditure aimed at supporting these changes is dependent on the country’s
economic health. Companies’ operating in the IT and Service industries’ ability
to make profit is dependent on technical expertise, effective marketing and
innovative services. Large companies such as Facebook, Twitter or LinkedIn have
an advantage in broad service offerings and global reach, which enables them to
provide outsourcing services to big business customers. Small companies on the
other hand can compete for the same market successfully by concentrating in
market niches or by doing business with larger companies that wishes to broaden
their mix of services.
5.0 Financial
and other facts LinkedIn
4.1
Financial[m3] [D4]
Facts
Revenue
Looking
at the last five years to December 31, 2015, LinkedIn has witnessed a
consistent increase in net revenues. For the fiscal years ended 2011 and 2012,
LinkedIn reported net revenue of $243,099,000 and $522,189,000 respectively. In
the fiscal year ended December 31, 2013 LinkedIn reported net revenues of
$1,528,545,000, this amount increased to $2,218,767,000 in the fiscal year
ended December 31, 2014. Further increase was witnessed in December 31, 2015,
reporting net revenues of $ 2,990,911,000.
Gross profit
Gross
profit for LinkedIn constantly improved for the last three years. For the
fiscal years ended 2011 and 2012, LinkedIn reported gross profit of
$198,273,000 and $440,741,000 respectively. In the fiscal year ended December
31, 2013 LinkedIn reported Gross profit of $1,325,637,000, this amount
increased to $1,924,970,000 in the fiscal year ended December 31, 2014. Further
increase was witnessed in December 31, 2015, reporting gross profit of $2,572,053,000.
Net income/loss
For
the fiscal years ended 2011 and 2012, LinkedIn reported net revenue of
$15,835,000 and $11,912,000 respectively. LinkedIn witnessed a decrease in net
income from a positive profit in 2013 to a loss in 2014 and 2015. In the fiscal
year ended December 31, 2013 LinkedIn reported Net income of $26,769,000, a
loss of $15,747,000 in the fiscal year ended December 31, 2014. Further
increase in net loss was witnessed in December 31, 2015, $166,144,000.
Financial Ratios (FY2015)
|
Ratio
|
Formula
|
Computation
(millions,$)
|
Ratio
|
|
1.
Liquidity
|
|
|
|
|
Current
ratio
|
 |
 |
3.31
|
|
2.
Assets
management
|
|
|
|
|
Total
assets turnover
|
 |
 |
0.43
|
|
Accounts
Receivable turnover
|
 |
 |
8.60
|
|
3.
Debt
Management
|
|
|
|
|
Debt-to-assets
ratio
|
 |
 |
0.36
|
|
Times
interest earned ratio
|
 |
 |
-2.76
|
|
4.
Profitability
|
|
|
|
|
Profit
margin on sales
|
 |
 |
-2.35%
|
|
Basics
earning power
|
 |
 |
-2.00%
|
Interpretation of ratios
The
above ratios were calculated is based on the last fiscal year ended December
31, 2015. The following interpretation is given.
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Liquidity Ratios
Current ratio
Current
ratio expresses a company's current debt in terms of current assets. So a
current ratio of 3.31 would mean that the company has 3.31 times more current
assets than current liabilities. This ratio is high and shows that the company
is in good financial health. However, more accurate interpretation may be
provided if IT and Service industries average current ratio is known.
Assets Management Ratios
a. Total assets turnover
LinkedIn
had total assets turnover of 0.43 times in the fiscal year ended December 31,
2015. This shows that for every dollar of an asset invested held, the company
turns 0.43 to sales. Depending on the industry average this asset turnover is
low.
b. Accounts Receivable
Turnover
LinkedIn
had accounts receivable turnover of 8.6 times in the fiscal year ended December
31, 2015. This means for every one dollar of sales, the company cash out 8.60.
Depending on industry average this ratio could be big or small.
Debt
Management
a. Debt-Assets ratio
LinkedIn
had debt-assets turnover of 0.36 in the fiscal year ended December 31, 2015.
This means that the company finance 36% of its assets with debt. Depending on
industry average, financing 36 per cent of assets by debt can be small or big.
b. Times interest coverage
ratio
LinkedIn
had times interest earned ratio of -2.76 times in the fiscal year ended
December 31, 2015. This shows that the company has no income after operating
expenses to meet its interest obligations.
Profitability
a. Profit margin on sales
LinkedIn
reported profit margin of -2.35 per cent in the fiscal year ended December 31,
2015. This shows that LinkedIn is left with no money after all expenses are
deducted from revenue that can be distributed to shareholders.
b. Basics earning power
This
ratio indicates the ability of the firm's assets to generate operating income.
LinkedIn reported basics earning power of -2.00 per cent in the fiscal year
ended December 31, 2015. This shows that LinkedIn has no power to generate
earnings.
4.2
Other Facts
Business model
LinkedIn
provides a web-based site for career management as well as professional
networking activities. The company earns its revenue from three sources: hiring
solutions, marketing solution, and premium subscriptions. Hiring solutions revenue
is earned by enabling recruiters to search for potential employees through the
site. Alternatively, companies could buy hiring services from LinkedIn through
periodic subscription. Marketing solutions is basically through selling
advertising spaces on its web pages. Lastly, premium subscriptions are services
provided to users who would like advanced profile capabilities compared to
basic level profiles.
Market
LinkedIn’s
prospective customers are new businesses that need to employ new stuff, graduates
that are seeking employment, established businesses that are looking for
employees, as well as those businesses that would like to grow its businesses
by advertising. During the most recently reported quarter, LinkedIn had 450
million members as of the second quarter 2016 (Statista, 2016). During the
first quarter, LinkedIn had 414 million users. The LinkedIn share is 1.5% of
all websites, up from 1.1% one year ago (sec.gov, 2016).
6.0 LinkedIn’s
IPO
LinkedIn
offered 7.84 million shares out of 94.5 million shares outstanding for $45 a
share. It was looking to raise as much as $406 million in the offering. These
shares were classified into two; Class A and Class B. Class A shares came with
one vote per share while Class B came with 10 votes a share. Proceeds from the
IPO (roughly $200 million) were used for general business development and the
remainder was shared among selling shareholders and underwriters. The IPO was a
huge success. Following the day of IPO, the company began trading at $83.00 per
share, approximately 84 percent increase from $45 per share. That was a $7.8
billion market cap.
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6.1 IPO
Aftermath
Following
its IPO, LinkedIn has emerged as one of the best performer in the IT and
Service companies that connect people with similar interest. The company has
been growing at a faster and yielding much better shareholder returns compared
to the rest of companies such as Groupon Inc., Zynga Inc., Yelp Inc., and
Facebook Inc., in terms of revenue.
But
unlike Facebook and other sites despite all of its success, LinkedIn still
hasn't absorbed itself into the lives of people and reshaped technology as
greatly. Even though its revenue has been going over the roof tops, people
still spend far more time on Facebook and Twitter. Moreover, unlike Facebook,
LinkedIn hasn't turned out to be other online services hub, such as games and
music.
Since
its listing, LinkedIn have had several advantages in its professional market.
The membership count increased significantly. The increase in membership count
increased revenues through more job listings and advertising revenue. Going
public also enabled the company to be able to address management problem-
hiring talented employees, thus putting the company in a strong position.
7.0 LinkedIn
Stock price
LinkedIn’s
stock prices have significantly increased from the time it listed its stocks.
The company sold each stock at $45 a share during its IPO. Currently, its stock
trades at $195.12 a share. Its stock has been fluctuating ever since. The table
below shows the LinkedIn’s monthly stock price trend. Early last year (April
2015), the LinkedIn stock closed at highest price of $252.13 a share. The lowest closing the stock has ever traded
was at the end of IPO year (December 2011) when it closed at $63.01 a share.
8.0 Changes
after financial reporting
Following
2015 fiscal year financial reporting, LinkedIn have had several advantages in
its professional market. The membership count increased significantly. The
increase in membership count increased revenues through more job listings and
advertising revenue. Going public also enabled the company to be able to
address management problem- hiring talented employees, thus putting the company
in a strong position. In addition, as would demographics prove, LinkedIn
members are in a higher income bracket than its competitors’. Despite leading
market position, the marginal revenue brought in by international markets was
small compared to marginal costs. In addition, the company’s future growth can
prove challenging. LinkedIn is also faced with stiff competition especially in
the European market brought in by Viadeo and XING.
9.0 Conclusion’
LinkedIn
has performed well since its IPO. The company has so far gained significant
market share. The company has about 467 million register users up from 102
million before the IPO (Statista, 2016). Revenue has been rising but along with
the revenues, operating expenses has been increasing. Similarly, its stock has
been value has improved ever since it’s IPO.
10.0
References
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Kapko, M. (2014). Comparing
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Niu,
Evan (May 20, 2015). "This Company Has The Best Business Model in Social
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NewsMax
Finance. (2013, May 13). Two Years after IPO, LinkedIn Is a Star Performer.
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