Congratulating LinkedIn on fantastic quarterly financial results is like a broken record

This is becoming a rather re-occurring theme where we give a brief commentary immediately after LinkedIn reports their quarterly financial numbers (which consistently impress!).  So, in true broken-record fashion, let’s say it again:  “Congratulations to LinkedIn on another fabulous quarter.”

Before we get into some of the numbers I would just like to make one general comment about this Company and their CEO, Jeff Weiner, specifically.  While LinkedIn has been experiencing terrific growth over the past few years and the stock market ‘experts’ continue to apply pressure to Jeff to provide more aggressive guidance into future revenues, he continues to temper what are probably unrealistic expectations and keeps everything in perspective.  It’s a typical under-promise and over-deliver.  While some may feel that this is ‘sand-bagging’, I disagree.  We have seen it time-after-time before where Companies tend to let Wall Street dictate potential future revenue expectations with each of their individual opinions of “Price Targets” based on a good or bad earnings report.  Jeff is having none of it and continues to guide this Company with a solid growth strategy.

Reading this full article and the comments from the analysts shows some of the frustration among the Wall Street pundits at Jeff’s ‘low-balling’:  LinkedIn Surges: What Wall Street’s Saying (http://www.thestreet.com/story/11997644/1/linkedin-surges-what-wall-streets-saying.html?puc=yahoo&cm_ven=YAHOO)

So, let’s dig into some of the numbers:

  • $363.7 million in revenue, a 59% increase on the same period a year ago.
    • Thomson Reuters were expecting … revenue of $353.8 million.
  • LinkedIn expects revenue between $367 million and $373 million,
    • …below the $383.3 million expected by a Bloomberg survey.
  • For the full year, the professional networking site raised its revenue guidance to a range between $1.46 billion and $1.48 billion, up from a prior range of $1.43 billion to $1.46 billion.
  • CEO Jeff Weiner pointed out that LinkedIn has 238 million users worldwide

Finally, just to put some icing on this cake where Wall Street has to provide one more little digg, here you go.  A direct quote from the article:

Though the company raised full-year revenue guidance, the next quarter’s guidance, as has become customary, was lower than expected.”

LinkedIn Q4’12 financial results: Cloud/SaaS are fads.

Congratulations to LinkedIn, once again, on delivering great fourth-quarter financial results.  These outstanding results continue to demonstrate the fact that the ever-growing disparate nature between “business cloud” and “consumer cloud” which we wrote about here previously.

While “Facebook fatigue” starts to set in for many users, LinkedIn’s membership continues to swell at an incredible pace.

Facebook Fatigue:  “About 27 percent of Facebook users – and 38 percent of those ages 18-29 – said they plan to spend less time on the social network this year, and 61 percent have at one time or another taken a “Facebook vacation” lasting several weeks or more.

Of course Facebook’s overall user base of over 1 billion and revenue in the $5 billion territory dwarf’s LinkedIn’s numbers in the same categories but the viability of each companies business model is what separates these two cloud ‘social’ companies.

linkedin logo

LinkedIn Q4 2012 financial results:

  • Revenue jumped 81 percent to $303.6 million
  • User base rose 8 percent to 202 million

Almost all of Facebook’s revenue is based on advertising, while LinkedIn is a nice blend of advertising and subscriptions.  Advertising only is not a viable long-term business strategy.  It’s just too simple for advertisers to switch from one marketing medium to another and they do it all the time.  Whatever is the ‘hot’ advertising deliver platform at a particular time is where the money will surely flow.

As LinkedIn continues to establish itself as the most popular site for job seekers, the company is selling more subscriptions to help recruiters find the right people. Revenue from talent solutions, Web-based software that recruiters and employers use to fill jobs, climbed 90 percent to $161 million, accounting for 53 percent of total sales.

Bait-and-switch?

I personally am a big fan of LinkedIn and absolutely love their services however it’s also best to be cautious not to rely on just one such service.  Why?  Because we’ve seen it thousands of times previously where a once great service starts to let pure greed take over the corporate culture from what it once was.  When a company starts to focus on pure profit and forgets about delivering a quality product or service then they are doomed. In the case of LinkedIn it might be starting with this:

Starting in the second quarter, the company will raise subscription prices for products targeting recruiters and promoting job openings.

Of course LinkedIn has every right in the world to charge whatever they wish for their services but they should be careful to avoid the ‘How Netflix Lost 800,000 Members, and Good Will‘ effect.  What Netflix did was a classic bait-and-switch.  They on-boarded millions of loyal, and mostly satisfied, users and then arrogantly raised prices on their services.

Subscribers revolted and many dropped the service. The plan further tarnished a once widely respected Internet service that had already been wounded by an unpopular price increase in the summer.

Netflix temporarily lost yours-truly as a customer.  On a side-note, I admire Netflix mostly for their outstanding corporate culture.  View this slideshow if you want to learn more about the Netflix Corporate Culture.

I’m certainly not saying that LinkedIn is in danger of losing users due to this price increase but it’s always wise not to bite the hand that feeds you.

Fads

Just for fun I took the 2 year stock chart from Yahoo Finance and added today’s projected closing price of nearly $150 per share to the far-right portion of the chart.  As you can clearly see LNKD investors are certainly pleased with that they didn’t listen to all the ‘Cloud Is A Fad’ nay-sayers.

linked stock price 02 08 13

In summary, and in the true #CloudIsAFad spirit, I guess I will close by sarcastically pointing out that LKND on pace for over $1 billion annual revenue (~$16B valuation), CRM on pace for over $3 billion annual revenue (~$24B valuation) and even FB with over $5 billion annual revenue (~$69B valuation) are all just Fads.  #SaaSIsAfad.

You can read the entire article on ‘LinkedIn Profit, Sales Beat Estimates After Membership Swells’ here:  http://www.bloomberg.com/news/2013-02-07/linkedin-xxx.html?cmpid=yhoo

 

“Business” cloud and “Consumer” cloud. LinkedIn reports great Q2 earnings and revenue growth

Reading the news of LinkedIn’s great Q2 earnings report (http://finance.yahoo.com/news/linkedin-2q-net-income-falls-203904846.html) got me thinking about how seriously segregated the “business” market is becoming from the “consumer” market in regards to to cloud computing.

It’s becoming clear that investors, in the stock market and venture capital industries are only going to put their money with companies that offer serious business value instead of just relying on advertising as a revenue business model.  Some example of winners and losers as of this blog post (8/24/12) are as follows:

Winners

  1. LinkedIn  (+41.75% stock price over 1 year period)
  2. Salesforce  (+27.59%)
  3. Amazon  (+26.85%)

Losers

  1. Facebook  (-49.23%)
  2. Groupon  (-83.00%)
  3. Zynga  (-65.58%)

While the current stock prices, or the funding these companies are receiving, will certainly not dictate future results, the fact of the matter is that these types of indicators typically can accurately predict possible outcomes.

It’s clear to me that a business model such as LinkedIn where a good portion of their revenue comes from valuable ‘business’ services, as opposed to just advertising, is a winning formula:  “LinkedIn gets more than two-thirds of its revenue from fees it charges companies, recruiting services and other people who want broader access to the profiles and other data on its site. The rest comes from advertising.”

Congratulations to the LinkedIn folks on creating a great cloud service that people seem to sincerely enjoy, myself included.  Below are cliff notes from LinkedIn’s Q2/2012 quarterly earnings report:

  • LinkedIn Q2 Adjusted Earnings: $18.1 million (Q2/2012) versus $10.8 million (Q2/2011)
  • Revenue increased 89 percent to $228 million, from $121 million
  • The company raised its forecast for the year

They did, however, invest a lot of money in the future:

  • “Marketing, development and other expenses increased 93 percent to $215 million, from $111 million.”
  • “LinkedIn expects revenue of $235 million to $240 million for the current quarter.”

Here are the one year stock charts for the companies mentioned above for your viewing pleasure:

Winners:

LinkedIn

Salesforce

Amazon

Losers:

Facebook

Groupon

Zynga

Advice for the cloud vendors is to be a ‘business-class’ cloud services provider in order to grow a prosperous company.