LinkedIn Stock Prediction: Instant Articles Could Boost Its Marketing Solutions Segment

motek 1The article was written by Motek Moyen Research Seeking Alpha’s #1 Writer on Long Ideas and #2 in Technology  – Senior Analyst at I Know First

LinkedIn Stock Prediction

The original article was published on May 17 2016

Summary

  • LinkedIn is allegedly talking with content publishers to help it create a rival to Facebook’s Instant Articles.1
  • Sponsored news is a good way for LinkedIn to increase the revenue stream of its Marketing Solutions business segment.
  • Facebook and Google are still banned in China.
  • LinkedIn is already operating inside China. It can be a first-mover in delivering Instant Articles to Chinese residents.
  • I Know First is currently bullish on LNKD stock movement

 

The Marketing Solutions or advertising-related segment of LinkedIn (LNKD) is still not generating as much money as its Talent Solutions segment. I am therefore elated to learn that LinkedIn is allegedly negotiating with media publishers to help it build a rival to Facebook’s (FB) Instant Articles.

Creating an Instant Articles-like service is a great way to improve the future revenue stream from Marketing Solutions. As a global social network, LinkedIn professionals badly needs to improve its advertising business. As you can see from Statista’s chart below, Marketing Solutions only delivered $154 million during Q1 2016. Talent Solutions generated $558 million.

1

(Source: Statista)

LinkedIn already has 433 million users. The company is clearly not doing enough to better monetize its huge pool of users through Sponsored Content or targeted ads. During its most recent quarter, Facebook made $5.2 billion from advertising, this is more than 33x higher than LinkedIn Marketing Solutions’ revenue of $154 million.

It’s no wonder why most institutional and retail investors have rallied around FB, but went bearish on LNKD. On a one-year basis, FB (+45%) greatly outperformed LNKD (-24%).

2

(Source: Google Finance)

Instant Articles Are Not As Annoying As App-Install Ads

I understand that LinkedIn has a different user base than Facebook. I do not think the professionals using LinkedIn will tolerate the cash cow of Facebook-style app-install ads. Statista estimates that Facebook made more than $6.4 billion from app-install ads last year. Unfortunately, LinkedIn will likely alienate a large part of its users if it tries to imitate Facebook’s app-install tactic.

Creating a news-centric service like Instant Articles is therefore the logical move for LinkedIn. Fast-loading news content from third-party publishers are acceptable ad-delivery vehicles to business users. Instant Articles could also be considered as Sponsored Content.

Media publishers will likely support this attempt of LinkedIn. The mostly professional users of LinkedIn are a coveted audience for targeted ads and subscription offers. Like Facebook, LinkedIn is also popular in other countries, not just in North America, or Europe.

3

(Source: Statista)

Moving First In China

China, where Facebook and Alphabet (GOOG) are still absent, is where LinkedIn can build an Instant Articles service for Western media companies. LinkedIn already has 20 million users (up from just 5 million in 2014) in China. That’s a big enough audience for Sponsored news articles.

I know foreign news is heavily censored by Chinese authorities. However, I believe the Chinese censors allow foreign articles that contain non-political agenda. Middle-class Chinese households could be a good audience for LinkedIn’s censored Instant Articles that contain showbiz gossip, tech & science updates, business, and social happenings.

Apple (AAPL) disabled its News App service in China last year. LinkedIn could become the top-source for foreign news among the elite iPhone/iPad users of China. Advertisers and content marketers covet the eyeballs of iOS device users. They are more likely to subscribe to a paid news service than their Android-using counterparts.

Final Thoughts

Since LNKD’s stock price has substantially fallen since December, I think now is the right time to bottom-fish it. The new effort to create a rival service to Facebook’s Instant Articles is highly-commendable. It’s the right path toward improving the ad-related revenue streams.

LinkedIn’s topline and bottomline growth can only improve once it gets to learn how to sell more ad spaces. I am even in favor of LinkedIn testing some business-related or employment-related app-install ads. Since they are not games, business users may not get offended by ads asking them to install investing-related or educational mobile apps. Corporate slaves and mobile workaholics would also likely appreciate it if LinkedIn’s app helps them find and install productivity apps.

Taking big risks is what LinkedIn needs to improve its advertising business. Non-games related app-install ads is worth a risk if it wants to catch up with the 17.17x TTM Price/Sales valuation of Facebook. Even though LinkedIn has one-fourth of the user count of Facebook (1.65 billion), it only has a TTM P/S ratio of 5.36x. Revenue wise, LinkedIn’s weak advertising business meant it only has a TTM revenue of $ 3.21 billion. Facebook is making 6x more.

4

(Source: Yahoo Finance)

My Buy recommendation for LNKD is in line with the favorable one-year algorithmic forecast from I Know First. The +133.77 score says LNKD is undervalued right now and is likely to recover in (not fall further) after one year.

I Know First Algorithm has previously predicted LNKD stock movement like in this prediction of a 3 month period from August 26, 2016 until November 26, 2016. The LNKD signal was 41.97 with a predictability of 0.29 which managed to bring returns of 44.56% in only 3 months.

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