4 ways LinkedIn is completely defying its most sceptical critics

LinkedIn continues to be not only the social media site for professionals, but the professional of the social media companies. One of the best-performing recent tech IPOs reported another strong quarter, beating expectations for revenue and boosting full-year guidance.

Shares jumped 12% to US$105.24 in recent trading. This comes a week after Facebook shares dropped steadily in the wake of its earnings and its stock hit an all-time low, dipping below US$20 for the first time ever.

Currently, LinkedIn is trading at twice its IPO price; whereas Facebook is trading at just over 50% of its IPO price. And while Facebook relies on advertising and its payments business is flat, LinkedIn has three revenue streams: recruiting tools, premium subscriptions, and advertising.

Clearly, when it comes to monetizing social media, LinkedIn delivers a much harder punch than Facebook. On average, LinkedIn generates $1.30 per user hour spent on the site, while Facebook scrapes by with a meagre 6.2 cents per user hour.

What exactly is LinkedIn doing right? Unlike most social sites, such as Facebook and Groupon, which have been hammered in the stock market recently, LinkedIn keeps winning Wall Street’s adoration for a good number of reasons.

1. LinkedIn generates traffic with a plan

Any social-media player may find it inebriating to attract a host of visitors. However, without a clearly defined plan, executives are merely throwing an enormous party that accomplishes little. LinkedIn’s membership rose 50% year-on-year, to more than 175-million users to date, while page views rose more than 60%, with much of the growth coming from mobile.

2. LinkedIn knows exactly how it wants to monetize social media

LinkedIn’s biggest revenue source in the latest quarter was its Hiring Solutions division, which helps corporate recruiters find the right people to hire. That division’s revenue grew 107%, to
US$122-million. Companies pay as much as US$8 200 a year for each LinkedIn seat, and blue chip coporates buy a hundred or more seats at a time.

3. LinkedIn is steadily expanding into open space

LinkedIn CFO Sordello estimates that within the United States, unmet demand, or “white space,” for LinkedIn’s recruiting product is three times the company’s current volume. That ratio is even larger outside the US. LinkedIn aims its high-end products at companies with 500 or more employees, and it counts 70 000 to 80 000 of them worldwide. To date, it has signed on just 12 000.

4. LinkedIn matters most to its community

Over the last year, LinkedIn asserts it has been working closely with more than 75 000 developers to build innovative developer tools that leverage the LinkedIn platform across the web. Madhu Gupta, head of API Platform Product and Strategy at LinkedIn, remarked in a blog post that “everyday, professionals are coming to LinkedIn to share and discuss what matters most to them and we’re seeing all-time highs of shares originating on LinkedIn.”

These are the main reasons why J.P. Morgan is rating LinkedIn stock highly: “Overall, we continue to believe LinkedIn is operating extremely well and has significant room for growth… LinkedIn continues to stand out from the broader group of recently public internet companies — we would expect shares to respond favourably in the near-term and for LinkedIn to maintain its large premium multiple.”

The verdict from LinkedIn’s stellar stock market performance is clear: The future in social media belongs to tribal communities — no longer is it good enough to provide platforms for consumers to broadcast their social prowess but digital platforms need to take a leaf from LinkedIn’s playbook in herd-building — how to capture customer communities of purpose and cater to their specific needs, be it recruiting, lead generation or even guitar playing, rather than adopting a shotgun approach of one-size-fits-all.