How LinkedIn Makes Cash; Behind the IPO Numbers


In May, LinkedIn went public. To much fanfare, the business-oriented social networking site sold common shares at $45 each, for a total offering of $352.8 million and a general valuation -- private and public stocks -- of $4.3 billion. It was the largest Internet initial public offering since Google went public in 2004. At one stage on launching, a share was trading at over $94, bringing back wistful memories of the dotcom boom of the late 1990s. At the end of the day, the business was worth $8.9 billion. In contrast, Facebook, the world's biggest social media, but still a private company, may be worth $94 billion if it went public in the not too distant future, according to published reports.

Encouraging to Other Internet Businesses?

Wall Street analysts, venture capitalists, and private technology firms were carefully watching LinkedIn's introduction into the world of public ownership. During the last few decades, there have been few high-profile tech filings and a whole lot of uncertainly existed about how such an IPO could be obtained by investors. Several other social networking companies, especially Facebook and Groupon, are considering IPOs and LinkedIn's strong showing should promote them.

LinkedIn is the company counterpart of the more raucous and popular Facebook -- over 500 million consumers -- and the now fading MySpace. You Won't be bumping into Fans of Justin Bieber or Kim Kardashian on LinkedIn. It targets business professionals who would like to find company contacts, prospective customers or employees, or job prospects. The business believes its exclusive focus on professionals a key competitive edge, eliminating the distractions of websites that cater to teenagers in addition to adults. LinkedIn accommodates both private and company profiles.

LinkedIn's History

Launched in 2003, California-based LinkedIn was the notion of Reid Hoffman, the founder of SocialNet.com, a now defunct online dating website, and a former PayPal executive. He became LinkedIn's first CEO and has been joined by many other executives from PayPal and SocialNet.com. At the beginning, Hoffman personally bankrolled the business. All the original founders have left LinkedIn, though Hoffman remains executive chairman. The current CEO is Jeff Weiner, who ran Yahoo's Network division.

The company didn't turn a profit before 2010 when net earnings was $243.1 million. That compares with $29.3 billion for Google. Facebook allegedly took in about $2 billion in revenues in 2010, with $1.86 billion coming from advertising sales, according to eMarketer, the research and publishing company. MySpace, owned by Rupert Murdoch's News Corporation, had advertising revenues of $288 million in 2010, a quote also supplied by eMarketer.

How LinkedIn Makes Money

LinkedIn's revenues come from three sources: user subscriptions, fees for text and display advertisements, and hiring solutions. The largest share comes from hiring solutions. Even though a basic membership is free of charge, LinkedIn provides various premium services to users like enhanced search and much more direct communications capabilities. In its IPO prospectus -- available from the Securities and Exchange Commission -- LinkedIn reported as of March 31, 2011, almost 4,800 businesses used its hiring solutions, including 73 of the Fortune 100. Called"LinkedIn Corporate Solutions," the hiring solutions make it possible for businesses to identify job applicants based on industry, job function, geography, expertise, and education. The prospectus states,"Our proprietary platform is designed to leverage viral activities, social networking, trusted recommendations and our abundant user-generated data to effectively connect associates, partnerships and professional organizations to relevant services and products."

LinkedIn employs a field sales force to market its hiring and advertising solutions. Largely as a consequence of the cost of keeping this worldwide sales force, LinkedIn's profit margin is 7.8 percent compared with 26.8 percent for Google.

The company reports more than 100 million registered users in over 200 nations. The Website is available in English, French, German, Italian, Portuguese, and Spanish. The business reported that as of January 2011 -- over 50 percent of its members lived out of america. The member base comprises executives from all of the firms in the 2010 Fortune 500. Currently, one million new members join LinkedIn weekly.

Competitors with similar business models comprise Xing, a German-based firm founded in 2003 with nearly 11 million consumers in over 200 countries such as the USA. Viadeo, headquartered in France, was founded in 2004 and has over 35 million registered users. It's an English language website but isn't well known in america. Quick Pitch is an American firm that focuses on small business owners and sales professionals.

Benefits for Smaller Firms

While large businesses locate LinkedIn useful, it might be of greater value to smaller companies that may use the platform as follows.

  • Locate workers. LinkedIn can be utilised as a low cost global employee-recruiting platform.
  • Competitive intelligence. It may be a source of free competitive intelligence based on how much info competitors post.
  • Professional information. Providers can solicit free expert advice from experts and peers from applicable LinkedIn Groups.
  • Professional demonstrations. Members have access to demonstrations coworkers have made at business conferences and workshops.
  • Advertising. Small business executives can position themselves as experts in their area by responding to information requests, posting articles they've written, or presentations they've made.

Challenges

The future holds dangers for LinkedIn. Fortune 500 firms, particularly the ones that sell to customers, are embracing Facebook for brand-building and advertising purposes, and Twitter for communicating and advertising. To remain competitive, LinkedIn must continue to increase its membership and supply new features and solutions. It has the benefit of possessing an affluent and well-educated membership base. The two LinkedIn and Facebook collect tremendous amounts of information from users and how they manage the privacy issues surrounding the information will impact their futures. Additionally, Wall Street may have been a bit overly extravagant. By June 21, the stock was trading in a little less than $68, losing more than 25 percent of its first day worth.


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