LinkedIn's hot streak: is the end in sight?

Not if the company can continue its rapid product innovation, and keep growing internationally

LinkedIn has recently been on a blazing hot streak, coming off four exceptional quarters in a row, where the company trounced Wall Street expectations. And in that time the company' stock has seen exceptional growth as well.

Amazingly, LinkedIn has beat Wall Street expectationsin every single earnings report since going public in 2011. And, since reporting the last four quarters, LinkedIn's stock has more than doubled, rising to $238.77 a share today, from $106.85 at the beginning of November 2012.

So, will LinkedIn remain a buy? LinkedIn shares are trading at a rich valuation. On a price-to-revenue basis, it's trading at 21.3 times the estimated revenue for full year 2013. That compared to 15.2 times for Yelp and 13.3 times for Facebook.

But as Seeking Alpha points out, "robust growth across international market is likely to continue," and that means LinkedIn shares are at least still worth holding on to. Given the momentum behind the company's releases, shares may be even worth picking up.  

Earnings reports and stock movement

First, let's take a look at how LinkedIn has been growing in the last year or so.

In its second quarter earnings report, LinkedIn posted non-GAAP earnings per share of 38 cents on revenue of $363.7 million, up 59% from $228.2 million in the year-ago period. Analysts had been projecting EPS of 31 cents a share on revenue of $354 million. 

In that time, LinkedIn membership grew to 238 million, an increase of 37% year-over-year.

"This strength was driven primarily by product optimization, and represents the first membership growth acceleration since the third quarter of 2011," it says in the report.

That followed three prior quarters where the professional social network came out ahead of expectations.

In its first quarter earnings release. LinkedIn posted non-GAAP earnings per share of 45 cents on revenue of $324.7 million, up 72% from $188.5 million in the year-ago period. Analysts had been projecting EPS of 31 cents a share on revenue of $317.1 million.

In the fourth quarter of 2012, LinkedIn posted non-GAAP earnings per share of 35 cents on revenue of $303.6 million, up 81% from $167.7 million in the year-ago period, and well above the consensus estimates compiled by Thomson Reuters of 19 cents a share on revenue of $279.5 million. 

And in the third quarter, the company saw non-GAAP earnings per share of 22 cents a share and $252 million in revenue. The social network was expected to post earnings of 11 cents per share and $243.9 million in revenue.  

Rapid product releases

Why has LinkedIn been doing so well?  In a conference call following the company's Q4 2012 earnings release, LinkedIn CEO Jeff Weiner pointed to one reason: its rapid product release.

Weiner credited the company's user growth to the new products delivered by LinkedIn during the year, which came from an accelerated product schedule, from once every two weeks to twice a day. Over the last four months of 2012, Weiner said, the company had introduced more new products than during any other similar amount of time in the company's history.

That included redesigning its homepage to allow members to discover, share and discuss the professional information that is most relevant to them, as well as introducing an updated profile.

Perhaps most importantly, LinkedIn introduced "influencers" to make the service into a professional publishing platform.

Since then, LinkedIn has kept up the pace. In fact, it has been introducing more features and capabilities in the last few months, which are designed to help the company bring in more users and add revenue.

In July, LinkedIn added Sponsored Updates to give a boost to its ad revenue. The new ad service will allow business that have Company Pages to display their advertisements to all 225 million LinkedIn users, even those who do not follow their page.

The company also beefed up its mobile search capabilities, giving users the ability to not only search for people but for jobs, companies and groups as well.

This month has seen LinkedIn add two new features: first, it was the ability to apply for jobs from the company's mobile app. Then, and even more importantly, LinkedIn added University Pages, and lowered its minimum age around the world.

The introduction of University Pages will be especially important down the road, since it will allow LinkedIn to hook in users while they are young.

International users

One aspect of LinkedIn's growth that is often overlooked is how the company is growing internationally. 

In Q3 2012, $162.4 million, or 64%, of LinkedIn’s revenue came from the U.S., while $89.7 million, or 36%, came from international markets.

The amount revenue coming from international markets has been growing at the same rate as revenue in the United States, remaining at 38% of revenue for the last three quarters. It went up to $114.6 million in Q4, then $123.3 million in Q1 and $139.4 million in Q2.

International expansion is key to LinkedIn's success; the company has become the go-to resource in the United States for professional social networking. Expanding overseas will allow the company to keep growing even if it slows down domestically.

Conclusion

LinkedIn has been able to keep growing based on its ability to release updates, and new products, at a rapid pace.

The company recently added a feature that will help grow its userbase among teenagers in the United States. There does not seem to be much of a reason to think that LinkedIn will slow down anytime soon.

(Image source: https://mashable.com)