Do you really understand LinkedIn’s business strategy?

LinkedIn is transitioning from a career portal to a professional network, enriching its members with industry relevant content and professional office solutions.

On February 5, 2016, LinkedIn experienced its worst day since its high profile IPO on the New York Stock Exchange in 2011. The stock plunged as much as 46.5 percent to a three year low of 102.89 and the market value dropped by $11 billion (Reuters).

Investors punished LinkedIn due to its weak net revenues of $2,991mm compared to the forecasted range $3,600mm to $3,650mm (Reuters). Furthermore, the percentage year on year revenue growth was down 10% points from 45% 2014 to 35% 2015 (Both US and International markets). In particular international Marketing Solutions dropped from %y/y revenue growth of 38% 2014 to 12% 2015. As well as Premium Subscriptions that was down 20%points from 42% 2014 to 22% 2015 (both US and International markets).

“Stock price represents the market value of the future stream of earnings”

What is LinkedIn’s business?

LinkedIn is organized in 3 main revenue streams:

  • Talent Solutions
    Talent Solutions is the most known of LinkedIn products, and potentially what most users associate LinkedIn with. Under Talent Solutions exist the opportunity for Companies to create career pages, post job ads and look for suitable candidates with LinkedIn’s recruiter software. Talent Solutions represent 63% of LinkedIn’s total revenue and can be defined as the Cash Cow.
  • Marketing Solutions
    Marketing Solutions is LinkedIn’s ad service where you can buy text, display, InMail, and sponsored updates. An ad product similar to Facebook ads that allow clients to customize a message and display it on the site. The challenge that LinkedIn is facing with Marketing Solutions is LinkedIn’s limited repetitive page views that in comparison to Facebook or Google are relative low. In 2014, American users spend on average 42 minutes a day on Facebook, whereas LinkedIn was just 9.8 minutes (eMarketer.com).
  • Sales Solutions
    Sales Navigator is the latest product in LinkedIn’s portfolio and to most people an unknown service. The product is utilizing data from LinkedIn’s 414 million members to generate valuable leads and assist sales staff prospecting. The product is still considered to be in its infancy stage and has received mixed reviews. However, there should be great potential for Sales Navigator being one of the key streams for revenue in the future.

LinkedIn_Revenue Streams

From Job Search to Publisher

LinkedIn started out as an online network for professionals and have become the world’s leading portal for job seekers and recruiters. Talent Solutions has very much defined people’s perception and LinkedIn is now working hard to change that mindset to suit a broader value proposition.

People who is active on LinkedIn would have noticed a recent explosion in publications on LinkedIn. LinkedIn allows every single member to publish posts on his/her profile and lately LinkedIn has been hiring professional journalist from papers like the Financial Times and Huffington Post to enrich LinkedIn Pulse with professional content. This is all a part of a strategy to increase time spend on LinkedIn and transform LinkedIn from being perceived as a career portal to become a professional platform providing value on several different levels.

Where is LinkedIn headed?

LinkedIn has one of the world’s largest databases of professionals and LinkedIn has collected an unprecedented amount of data, which naturally can be utilized to offer a wide variety of professional service.  Among these services is the Sales Navigator tool that opens LinkedIn to a whole new segment of clients.

What investors should assess when valuing LinkedIn is LinkedIn’s move into new and more lucrative customer segments. My belief is that the general perception of LinkedIn as a career portal is heavily mistaken and valuing LinkedIn with that mindset is potentially myopic.

Is LinkedIn overvalued or not?

LinkedIn closed at $114.35 equal to Earning Per Share (EPS) of $-1.29, which indicate that it might not be the most attractive investment available. However, considering that the stock was trading at $200+ last year and now is trading at half price, despite no operational changes at LinkedIn, might indicate that investors do not fully understand the strategic transition driven by LinkedIn CEO Jeff Weiner.

LinkedIn_process

From a strategic position LinkedIn is currently only executing stage 2 of a 3 stage plan.

  • Stage 1 was to establish a member base of critical mass and ensure network effect, which LinkedIn achieved with its Talent Solutions products.
  • Stage 2 is to make LinkedIn widely valuable to professionals outside of job seeking and hiring. LinkedIn must attract more traffic and is with its services Pulse and Lynda competing in totally new territory.
  • Stage 3 is where LinkedIn will become profitable. Through professional services like the Sales Navigator sold to companies and enterprises. For stage 3 to succeed, Stage 2 must be a success. Only then will LinkedIn fully benefit from its 414 million members.

The privilege of fresh air

Oh I am so privileged! So privileged to breathe fresh air, so pure and clean that 50 years from now, my doctor will compare my lungs with that of a new born child. However, that isn’t the reality for certain regions of this plant and I have come to discover that with my recent move to Singapore.

When growing up in Scandinavia, no one is questioning the quality of the air. True there is smog and pollution in the air mainly from cars and from a few fossil fuel power plants. All over the air quality is considered very well on the PM10 and PM2.5 indexes.

However, that is not the case everywhere in the world and currently Singapore is one of those places. Not that Singapore choose to be a polluted environment, but because of its geographical location that allow its neighbors to contaminate the air of Singapore. Every year Indonesia is hit by forest/wild fires that are intended to clear the land and make space for plantations, mainly for producing palm oil and paper.

Naturally the firers causes smoke that is send into the air and can travel for hundreds of miles, depending on the size of the particles in the smoke. This is defines as haze, which is currently contaminating the populations of Indonesia, Singapore, Malaysia and other neighbors. The implications over time can be serious health issues and in worst case lung cancer.

When living and experiencing this smoke season, where people are encouraged to wear N95 masks, and avoid outdoor activity. That is when you realize that fresh clean air is not a birthright and something that shouldn’t be taken for granted. A lot of people’s health is jeopardized for somebody else’s profit. A professor of Nanyang Technological University shared this article about how we as political consumers can exercise our powers to avoid haze in the future. Exercise Consumer Power to Fight the Haze

If you want to know more about the effect of haze, the Straits Times shared this explanatory article, which features a live satellite map provided by NASA, showing the fires all over South East Asia. Straits Times Haze Graphics

Fires South East Asia

Global Management Challenge 2011

Global Management Challenge

I participated in Global Management Challenge (GMC) the world’s largest Strategy and Management Competition, where more than 450,000 university students compete worldwide. Global Management Challenge is the largest international business simulation event and has a history going back to 1980 when if for the first time emerged in Portugal by SDG – Simuladores e Modelos de Gestão. Today 34 nations are represented in the game and the nationalities stretch from Denmark to Singapore; from Venezuela to China.

The game is a simulation game challenging me and all the other 450,000 participants with over 60 different decisions weekly, created to simulate a real decision board in a real company. Everyone participate in team of 3 to 5 people, and I was joined with 4 classmates about making the decisions.

The game gave me a great insight in what it takes to manage a production company, with all from buy of raw material, production facilities, employees, budgeting, agents, distributors, investors and 60 other parameters.

The game is played on a weekly basis, with one decision sheet per week. What defines the success on the scoreboard for the company is the value of the company’s stock on the stock exchange. The greatest companies reach the Danish final, where the best team will represented Denmark in the international final, in year 2011 taking place in Macao, China, only an hour with boat form Hong Kong.

Global Management Challenge is in Denmark sponsored by Maersk, Accenture, Siemens, Cowi, BiBoB, KPMG, BK Medical, IDA management forum and DJØF.

Read the official documentation for Global Management Challenge here