LinkedIn Swings to Profit Ahead of Merger

Revenue jumped 23% Y-o-Y to $960 million backed by global expansion of content and jobs

l1LinkedIn Corp. (NYSE: LNKD), the world’s largest professional network, announced its Q3 FY16 financial results on October 27th, 2016.

The Mountain View, California-based company has more than 420 million members worldwide across 200 countries and territories. The company has a diversified business model, with revenue being generated from the Talent Solutions, Marketing Solutions, and Premium Subscriptions product segments. LinkedIn provides the majority of its products at no cost to its members.

Its products are sold through two channels, an offline field sales organization, which engages with both large and small enterprise customers, as well as an online, self-serve channel, which includes enterprise customers and individual members purchasing subscriptions. The Company’s solutions include Free Solutions and Monetized Solutions. l2Read more about LinkedIn’s financial results below.

Q3 FY16 financial highlights

During Q3 FY16, LinkedIn’s revenue jumped 23% Y-o-Y to $960 million, largely because of the company’s ongoing investments in mobile, global expansion of content and jobs, and the acquisitions of lynda.com and Connectifier. During the reporting quarter, LinkedIn’s platform continued to show strong engagement, driven by investments across mobile, messaging, content and jobs. Cumulative members grew 18% Y-o-Y to 467 million, and unique visiting members grew 6% to an average of 106 million members a month. Member page views grew 27% during the reporting quarter, yielding 20% Y-o-Y growth in page views per unique visiting member. Mobile continues to grow at more than double the rate of overall member activity, surpassing 60% of all traffic to LinkedIn.

On a geographic basis, LinkedIn’s revenues from the U.S. jumped 21.4% Y-o-Y to $588.2 million. International revenues, which comprise Other Americas (Canada, Latin America and South America), Europe, Middle East & Africa (EMEA), and the Asia-Pacific (APAC) regions, surged 25.8% to $371.6 million. Specifically, revenues from Other Americas increased 16.3%, revenues from EMEA grew 25.6%, and APAC surged 33% during the reporting quarter.

LinkedIn’s total costs and expenses in Q3 FY16 rose 14.8% to $936.7 million. As a percentage of revenues, total costs and expenses were 97.6% compared with 104.7% a year ago.

On an adjusted basis (excluding amortization of intangible assets but including stock-based compensation), LinkedIn posted operating income of $66.2 million in the quarter under review, a more than a six-fold jump over the year-ago period’s reading of $9.8 million.

As a result, LinkedIn swung to GAAP profit of $9 million, or diluted EPS of $0.06, compared to loss of $46.91 million, or $(0.36), in the year-ago period. Non-GAAP net income was $163 million, excluding $2.0 million of merger-related transaction costs. Non-GAAP diluted EPS was $1.18 compared to $0.78 last year. Adjusted EBITDA was $304 million, or 32% of revenue.

Segmental highlights

During Q3 FY16, LinkedIn’s Talent Solutions revenue grew 24% Y-o-Y to $623 million. Hiring contributed $556 million in revenue, up 21% Y-o-Y, while Learning & Development contributed $67 million.

Marketing Solutions revenue jumped 26% Y-o-Y to $175 million during Q3 FY16. Sponsored Content remained the primary driver of growth and now accounts for almost two-thirds of total Marketing Solutions revenue.

Premium Subscriptions revenue rose 17% Y-o-Y to $162 million during the reporting quarter. Sales Navigator remained the faster growing component of Premium Subscriptions, across both the field and online channels.

Other highlights

Cash flow: LinkedIn ended Q3 FY16 with cash and cash equivalents of $3.36 billion compared to $3.31 billion in the preceding quarter. During the reporting quarter, LinkedIn generated approximately $373.3 million in cash flow from operations, while that for the first nine months of 2016 was $957.9 million.

LinkedIn unveils LinkedIn Learning: LinkedIn announced on September 22nd, 2016, that it is rolling out LinkedIn Learning, a site that provides e-courses and training services. LinkedIn Learning will be based on services from Lynda.com, an online learning site that the Company acquired for $1.5 billion in 2016. The new service offers more than 9,000 online courses in subjects including business, technology, and creative topics like programming, writing, and accounting. LinkedIn Learning also details what courses a user should take to pursue a certain job. Additionally, courses can be recommended to other users within the professional network. LinkedIn is targeting both businesses and higher education institutions through the site. The service costs $29.99 per month and is free for LinkedIn premium subscribers.

l3Redesigns desktop product: LinkedIn also announced on September 22nd, 2016, that it has redesigned its desktop product, improving the news feed and adding messenger bots to make it less cluttered and similar to a new mobile app rolled out earlier in 2016. The company will also add a scheduler bot that can automatically check online calendars from other providers for available meeting times and suggest locations when two users are messaging. Adding messenger bots to its desktop product is seen to be an area that could signify overlaps with Microsoft, which is now heavily focused on artificial intelligence-based chat software.

India-focused announcements: September 12th, 2016, LinkedIn announced that as part of itsl4 India-focused strategy, it is aiming to bring more learners onto its platform with the launch of LinkedIn Learning. The Company also launched three products; a mobile site called LinkedIn Lite; a product aimed at the college placements market called LinkedIn Placements, and a LinkedIn Starter Pack aimed at startups and small businesses. These three initiatives are also targeted at other markets where there are shortfalls in terms of storage and bandwidth. All of the three products were entirely developed by its 250-person-strong R&D outfit in Bengaluru, Karnataka. India is home to LinkedIn’s second-largest user base with 37 million members, only behind the U.S., which has over 130 million users.

Microsoft acquisition on track: LinkedIn announced on June 11th, 2016, that it is being acquired for $26.2 billion by technology giant Microsoft Corp. (NASDAQ: MSFT) in one of the largest technology industry deals so far in 2016. Anti-trust regulators in the U.S., Canada, and Brazil have already approved the deal. Microsoft filed for E.U. approval in October 2016, and hopes for the transaction to close prior to the end of 2016.

The LinkedIn deal is largely seen as CEO Satya Nadella’s efforts to revamp the company and shift towards software and services delivered over the internet. Microsoft, which lags behind in the consumer web space that is largely dominated by Alphabet Inc. (NASDAQ: GOOG), the parent company of Google Inc., and Facebook Inc. (NASDAQ: FB), wants to make its presence felt in social tools for professionals. Read more about Microsoft’s latest acquisition bid.

Microsoft will pay $196 per share in an all-cash deal, including LinkedIn’s net cash, a 49.5% premium to LinkedIn’s closing price on Friday, June 10th, 2016. LinkedIn will retain its brand name and remain an independent company under CEO Jeff Weiner. The deal is the biggest ever for Microsoft as Nadella turns the focus on business customers with cloud-based services and productivity tools. In a press conference after the announcement of a potential LinkedIn buyout, Microsoft outlined a vision in which a person’s LinkedIn profile could mesh seamlessly with Windows, Outlook, Skype, Office productivity tools like Excel and PowerPoint, and other Microsoft products. LinkedIn’s analytics could help power data tools for Microsoft’s Dynamics, which competes with Salesforce.com in helping companies manage customer relationships.

That apart, the LinkedIn acquisition signals a broader shift in Microsoft’s corporate strategy to become a company that primarily sells online services to business customers. LinkedIn is seen to help Microsoft both broaden the set of business customers it can serve and deepen the relationship with those it already serves. LinkedIn is considered an essential networking tool, with more than 100 million monthly active users. There are significant overlaps between LinkedIn’s user base, corporate professionals, and Microsoft’s customers. LinkedIn is already providing online services rather than selling software, and offers a Facebook-style newsfeed to its users. Microsoft plans to integrate this newsfeed into the Office 365 user interface, allowing users to keep track of developments in their professional network while they are working on a spreadsheet or presentation.

Stock Performance

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LinkedIn’s stock finished the day at $188.98, falling 0.33%, at the close on Tuesday, November 1st, 2016, having vacillated between an intraday high of $189.40 and a low of $188.68 during the session. The stock’s trading volume was at 827,647 for the day. The Company’s market cap was at $25.46 billion as of Tuesday’s close.

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