LinkedIn Analysis

Summary

• The amount of LinkedIn profiles has nearly hit 400 million.
• User engagement is growing fast, thus demonstrating that members are finding LinkedIn more useful.
• The acquisition of LinkedIn has effectively eliminated all serious competition.
• Has become a hit amongst student and young professionals thereby indicating that time is on their side.
• I Know First’s algorithmic analysis has forecasted bullish long-term evaluations for LNKD stock.

LinkedIn (LNKD) is a business-orientated social network mainly used for professional networking. LNKD stock plummeted at the end of April after its quarterly results report and, despite stronger second quarter results, LinkedIn shares have noticeably not manage to rally back to anywhere near their previous levels and are down 18.65% year-to-date. LNKD is now currently valued at $186.88 – a one year low.

(Figure 1: Yahoo Finance)

These disappointing results have largely been blamed on LinkedIn’s high profile acquisition of Lynda.com. The cost of integrating the two companies and merging their customer base has clearly reduced the LinkedIn’s net income. Additionally, wildly fluctuating currencies have often created an unfavorable exchange rate for LinkedIn. Despite LNKD stock not performing very well over the past six months, a closer look at the company and its last quarterly release, makes me believe that the company has enormous potential and is intensely undervalued.

User Growth

In order to survive in the world of social media it is of paramount importance for social media platforms including LinkedIn to constantly maintain user growth rates. Now that LinkedIn has successfully created a unique network and a well-respected brand name. A LinkedIn profile has now become essential element in almost every profession and an integral part of any resume which has led to LinkedIn amassing nearly 400 million members.

(Figure 2: http://www.statista.com)

Premium subscriptions, which members pay for, is on the rise too and have generated revenues of $128 million – representing a year-over-year increase of 22%. The number of jobs advertised on LinkedIn has nearly reached four million – as opposed to last year’s figure of one million. Similarly, LinkedIn’s Job Search app, which reached one million activations in the first quarter, has now surpassed three million searches.

LinkedIn is generating users at an average rate of two new users a second a lot of them are paying for LinkedIn’s services. The company has successfully amassed enough users to be the world’s third largest country and with such a vast customer base has enormous potential to expand revenues further.

Growing Engagement

Yes, LinkedIn’s membership is continuing to rise (which is great news). However, to what extent LinkedIn member are actively using their profile on a regular basis is perhaps more indicative regarding future growth prospects.

If member page views are increasing at a faster rate than unique member views then overall engagement on LinkedIn is likely to be in good condition. LinkedIn’s second-quarter earnings illustrate that user page views surged by 40% as opposed to a 15% growth rate in unique visitors – thus demonstrating fantastic user engagement.

CEO, Jeff Weiner, emphasized in the earnings call how the company is continuing to, “Invest in the quality and the relevance of the flagship LinkedIn experience… (which) resulted in a 60% increase in year-over-year feed engagement and search growing meaningfully faster than overall traffic”. The company clearly believes that the quality of using LinkedIn is as important, or even more important, than the quantity of users LinkedIn has.

Acquisition of Lynda.com

The recent acquisition of Lynda.com in May and the integration of its mass library of training videos has boosted the number of LinkedIn users and the company’s profits have risen as a result.

The acquisition has also effectively eliminated any competition that LinkedIn may have had and with revenues increasing by 33% to $712million the company has undoubtedly built a valuable property. Indeed, Lynda.com contributed $18 million in revenue in the second quarter and as LinkedIn gradually integrates Lynda.com into their operations one can expect that number to grow further.

Broadening Markets

The firm is growing rapidly abroad too. In the first two quarter of 2015, more than 75% of new members came to LinkedIn from outside the United States. Whilst there are more than 380 million members in over 200 countries and territories, there is vast and untapped potential to expand their customer base in many areas in the world.

If LinkedIn manage to successfully persuade the Chinese market to embrace the concept of a network for career professionals, they could potentially expand their Chinese customer base from a mere 10 million members to over 100 million.

Likewise, the 39 million students and recent college graduates are LinkedIn’s fasting-growing demographic and subtly emphasize the manner in which LinkedIn has established themselves as a “must have” in order for young professionals to climb up the corporate ladder. If a company’s strength is measured through its customer base, then LinkedIn is a young and upcoming company and does not seem like withering away anytime soon.

Analyst Opinion

LNKD shares have fallen by nearly 30% in the last six month and are currently valued at below $190. Analysts overwhelmingly believe that, at their current price, LinkedIn shares are highly undervalued and analysts cannot emphasize more strongly their belief that buying in LinkedIn shares now will be a fantastic investment.

(Source: NASDAQ)

Indeed, the 12-month consensus price target is $253 – a healthy 25% return. With such strong recommendations to buy from a host of investing giants, it would be a strange move not to invest bullishly with LNKD.

Algorithmic Analysis

I Know First supplies financial services, mainly through stock forecasts via their predictive algorithm. The algorithm incorporates a 15-year database, and utilizes it to predict the flow of money across 2000 markets. The self-learning algorithm uses artificial intelligence, predictive models based on artificial neural networks, and genetic algorithms to predict money movements within various markets.

The algorithm produces a forecast with a signal and a predictability indicator. The signal is the number in the middle of the box. The predictability is the number at the bottom of the box. At the top, a specific asset is identified. This format is consistent across all predictions. The middle number is indicative of strength and direction, not a price target. The bottom number, the predictability, signifies a confidence level.

Recently, I Know First Research published a bullish article on LinkedIn, the world’s biggest social network for professionals, on Seeking Alpha. Now that we know how the algorithm works it is worthwhile to see if the algorithm correlates with the bullish fundamental analysis in the Seeking Alpha article. The one month, three month and one year forecasts are included below.

(Figure 4: LNKD Forecast August 18th ’15)

The above forecast is one of our most-recent forecast from August 18^th 2015 and is for the one month, three months and the more long-term period of one year. The forecasts demonstrate that LNKD is amongst our most bullish long-term tech stocks, with a phenomenally strong signal strength of 122.95 for the one-year forecast.

The algorithm correlates with the fundamental analysis where the general consensus is that via their rapidly expanding market base, a notable lack of competition and continuously increasing revenue LNKD stocks are bound to rise in the long term. If LinkedIn’s management stays focused on maintaining growth and increasing shareholder value, LinkedIn shares would make a valuable long-term investment.

Positive signal strength does not mean investors should automatically buy the stock. Dr. Roitman, who created the algorithm, created rules for entry for a stock such as Gilead Sciences. Using this trading strategy, an investor should buy a stock if the last 5 signal strength’s average is positive and if the last closing price is above the 5-day moving average price. When both of these conditions are met, it is a good time to initiate a position in the stock.

Conclusion

LinkedIn shares have performed shockingly bad over the past six months due to their acquisition of Lynda.com and unfavorable exchange rates. However, LinkedIn shares are not just potentially lucrative investment opportunities because of this low-priced buying opportunity, as the points listed above demonstrate, the company has the ability and resources to expand on the success it has seen since the company was established.

People will always seek jobs and there will always be employers looking to hire and, as a popular career-networking network, LinkedIn stands to gain profitably as more and more individuals seek employment via the internet and more companies attempt to recruit online too.

I Know First’s algorithmic analysis mirrors the bullish fundamental analysis and believes that if LinkedIn’s management stays focused on maintaining growth and increasing shareholder value, LinkedIn stocks, at their current valuation, have promising potential and would therefore make a valuable long-term investment.