How LinkedIn Makes Money
Revenue is up 120 percent in their first public earnings report
LinkedIn's bombshell IPO in May left a lot of investment analysts scratching their heads. On one hand, the company's steller reception at the stock market seemed too good to be true. Surely it was the sign of a new tech bubble floating on the fantastic, unfounded dreams of social media's profit potential. On the other hand, the revenue figures looked pretty good. Based Thursday's earnings report, the first that LinkedIn has released since going public, those figures look really good -- revenue has doubled, profits are up -- and critics are rethinking that bubble talk.
The social network for professionals saw a 120 percent jump in revenue from $54.9 million last year to $121 million this year. Profits rose to $4.5 million, a small jump from last year's $4.3 million. Traffic to the site also grew with a hearty 83 percent increase in unique visitors. LinkedIn's CEO Jeff Weiner says he plans to keep growing. "Going forward, we plan to continue to invest in our team, technology, and products in order to increase the value we deliver to members and realize the full potential of the LinkedIn platform," said Weiner.
LinkedIn makes money a little differently than other social media sites. There are basically three revenue streams: Hiring Solutions, Marketing Solutions and Premium Subscriptions. All three of these products thrive at time when lots of people are looking for work and even more so when companies are hiring and willing to pay for help with the process.
Hiring Solutions includes services that let companies post jobs, build company pages for recruiting and enroll in LinkedIn's recruiting program. Altogether, this amounts to about half--48 percent in the latest earnings reports--of the company's reported $121 million second quarter revenue. Buoyed on this product, profits for the company are up fivefold.
Marketing Solutions amount to your basic display advertising business, but there's a kicker. Because LinkedIn is built around people's professional profiles, companies are able to create or sponsor custom groups around specific careers and build pages with deeper offerings than places like Facebook. Second quarter revenue amounted to $38.6 million, a 111 percent increase over last year, and the prospect for more growth is strong. Traffic is booming and LinkedIn now has more visitors than MySpace or Twitter.
Premium Subscriptions are a boon during tough economic times. With a host of features not available to non-paying members, the account upgrades presumably help recruiters more easily find your profile. If you're looking for work at time when lots of people are looking for work, paying a subscription fee ranging from $20 a month to $75 a month might seems like a small price for a competitive advantage. A fifth of LinkedIn's revenue comes from these fees.
It's somehow obvious to realize that a site like LinkedIn would do well when lots of people are looking for work. There are broader implications for the rest of the tech industry though. LinkedIn's strong earnings "bode well for the upcoming IPOs from Zynga Inc. and Groupon Inc." says Jessica Guynn at the Los Angeles Times. ReadWriteWeb's Jon Mitchell thinks "LinkedIn's Web traffic is great by any measure" and the company's on track towards their goal of reinventing the resume. Nicolas Carlson at Business Insider points out that LinkedIn beat JP Morgan's model at IPO, but "didn't beat its whisper number."
Regardless, at least they're making back some of the money that bankers allegedly scammed them out of on their first day at the stock market.