linkedin corporation

Strategic Analysis

By:

Darius Johnson

Advisor: Michael Harvey

April 20, 2015

LinkedIn Corporation [Johnson]

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Table of Contents ABSTRACT ................................................................................................................................................ 4 CHAPTER 1: INTRODUCTION ............................................................................................................. 5 ASSESSMENT .............................................................................................................................................................. 5 RESEARCH METHODOLOGY ..................................................................................................................................... 5 INDUSTRY BENCHMARK ........................................................................................................................................... 6 KEY FINDINGS ............................................................................................................................................................ 7

CHAPTER TWO: INDUSTRY ANALYSIS ............................................................................................ 8 INDUSTRY BACKGROUND ......................................................................................................................................... 8 SIC & NAICS Codes ................................................................................................................................................ 8 Industry Definition ............................................................................................................................................... 8 Industry History .................................................................................................................................................. 10 Industry Snapshot .............................................................................................................................................. 13

ETHICS & CURRENT EVENTS ................................................................................................................................ 15 INDUSTRY BENCHMARK ........................................................................................................................................ 19 STOCK SUMMARY ................................................................................................................................................... 20 CAGR ....................................................................................................................................................................... 21 PESTEL ANALYSIS ................................................................................................................................................ 22 Political/Legal ..................................................................................................................................................... 22 Economic ............................................................................................................................................................... 23 Sociocultural ........................................................................................................................................................ 24 Technological ...................................................................................................................................................... 25 Environmental ..................................................................................................................................................... 26

PORTERS FIVE FORCES MODEL ........................................................................................................................ 26 Rivalry ..................................................................................................................................................................... 26 Threat of Substitutes ........................................................................................................................................ 27 Bargaining Power of Suppliers .................................................................................................................... 27 Buying Power of Consumers .......................................................................................................................... 28 Threat of Entrants ............................................................................................................................................. 28

CHAPTER TWO SUMMARY .................................................................................................................................... 29 CHAPTER 3: FIRM ANALYSIS ............................................................................................................ 31 COMPANY BACKGROUND ...................................................................................................................................... 31


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Vision and Mission ............................................................................................................................................. 33 Snapshot ................................................................................................................................................................ 34

ETHICS & CURRENT EVENTS ................................................................................................................................ 35 ORGANIZATIONAL ANALYSIS ................................................................................................................................ 37 Structure ................................................................................................................................................................ 37 Culture .................................................................................................................................................................... 43

MARKETING ANALYSIS .......................................................................................................................................... 45 Product ................................................................................................................................................................... 45 Place ........................................................................................................................................................................ 46 Pricing ..................................................................................................................................................................... 47 Promotion ............................................................................................................................................................. 47

INFORMATION SYSTEMS ANALYSIS ..................................................................................................................... 48 FINANCIAL ANALYSIS ............................................................................................................................................ 50 Liquidity Ratios ................................................................................................................................................... 50 Activity Ratios ..................................................................................................................................................... 51 Debt Ratios ............................................................................................................................................................ 52 Profitability Ratios ............................................................................................................................................ 55 DuPont Ratio ........................................................................................................................................................ 57 Critical Reflection .............................................................................................................................................. 58

BUSINESS STRATEGY (GENERIC STRATEGY) ..................................................................................................... 59 CORPORATE STRATEGY ......................................................................................................................................... 60 CHAPTER SUMMARY .............................................................................................................................................. 61

CHAPTER 4: RECOMMENDATIONS ................................................................................................. 62 SWOT ANALYSIS ................................................................................................................................................... 62 Strengths ................................................................................................................................................................ 62 Weaknesses ........................................................................................................................................................... 64 Opportunities ....................................................................................................................................................... 66

RECOMMENDATIONS ............................................................................................................................................. 67 Internal ................................................................................................................................................................... 67 External .................................................................................................................................................................. 70

APPENDIX: INDUSTRY BENCHMARK ............................................................................................. 72 REFERENCES .......................................................................................................................................... 74 CHAPTER TWO ........................................................................................................................................................ 74 CHAPTER THREE .................................................................................................................................................... 76 CHAPTER FOUR ....................................................................................................................................................... 79


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Abstract LinkedIn Corporation is social networking company that seeks to connect

the world’s professionals. It offers talent, marketing and sales solutions on a

global scale. LinkedIn has become a pioneer in enabling professionals to

advance their careers and continues to provide the resources for them to do so.

Research of past and current events, data, industry trends and more have

shaped this strategic analysis. LinkedIn has established itself as a necessary

resource for all professionals with its advancements in recruiting, marketing,

education, media creation and networking. Furthermore, it has managed its

operations in an increasingly self-sustaining manner. LinkedIn’s growth is

expected to continue to climb as it strives to create economic opportunities for

every individual in the global workforce. It’s vision, strategy and performance will


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be compared with top competitors within the social networking industry for this

analysis.

Chapter 1: Introduction The following is a study of LinkedIn Corporation. A global company,

LinkedIn has the largest professional network in the world. In order to present a

comprehensive analysis of LinkedIn, an analysis of its industry and direct

competitors must be considered as well. The financial performance, internal

operations, and forthcoming trends for these companies were taken into account

as well.

Assessment

Companies within the social networking industry focus on providing people

around the world with a platform that allows them to connect with others through

Internet-accessible devices such social networking sites want users to grow their

networks. For LinkedIn and its competitors one key growth metric is the total

amount of users who have signed up and use a platform. This analysis will also

use revenue as a measure of success.

Research Methodology


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In order to provide an accurate analysis of LinkedIn and its industry,

information from a large selection of resources was required. Organizational

information such as: culture, mission statement, values, structure, history, etc.

was gathered from company websites. Financial information was cross-

referenced from credible websites such as: Marketwatch.com, Yahoo! Finance,

Reuters, Forbes, Bloomberg Business.

While conducting the financial analysis, some difficulty was experienced.

Information for selected periods occasionally was not available or it differed from

other sources. Google+ and Pinterest were originally companies chosen to

compare to LinkedIn, but Pinterest is privately held and Google+ was an

extension of Google, creating complications for the process of gathering financial

information on both. As a result, both companies were omitted from the analysis.

Industry Benchmark

When constructing an industry benchmark, it is critical that one selects

ratios and companies that provide the most relevant and use data for the

evaluation. Facebook and Twitter were chosen on account of their status as top

revenue earners for social networks. They have shown significant levels of

growth since becoming publicly traded, along with the likes of LinkedIn.

The financial information used in the benchmark provides a deeper look

into the companies that have been selected. The ratios chosen analyze the firms’


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liquidity, profitability, financing methods, dividends and growth. The benchmark

compares gross profit margin, operating margin, net profit margin, return on

equity and return on assets. Additionally, current ratio, debt ratio, equity

multiplier, DuPont Ratio and asset turnover were calculated over a four-year

period (2010-2014).

Key Findings

• Social networking industry expected to grow as technology mobilizes.

• Increase in global connectivity means more focus on privacy.

• LinkedIn has global influence and is increasing its reach.

• LinkedIn’s revenue has grown with the influence of technological growth.

• LinkedIn has become increasingly self-sustainable as it paid debts from

external financing.

• Possible cyclical stock; moves with the market.

• User engagement levels are very low despite allowing users to publish content

• There’s opportunity for LinkedIn to utilizing the combination of live streaming

and media content.

• Self-sustainability, revenue growth, market share potential, and low debts make

LinkedIn valuable stock.


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Chapter Two: Industry Analysis

Industry Background

SIC & NAICS Codes SIC: 7370 - Services - Computer Programming, Data Processing

NAICS: 519130 - Internet Publishing, Broadcasting and Web Search

Portals

Specialized Industry Report Code: OD4574 - Social Networking Sites

Industry Definition

The Internet Publishing, Broadcasting and Web Search Portals industry

has the primary focus of providing content for users to find online. Non-internet

items do not fall into the industry's scope of production. Organizations in the

industry tend to be social networks (LinkedIn), video sharing websites (YouTube),

online radio or streaming platforms (Pandora), blogs (Elite Daily), and more

(Sentz 2008).

The primary advantage of this industry is the connectivity that the Internet

provides to users worldwide. Unlike non-internet content, content within the

Internet Publishing, Broadcasting and Web Search Portals industry can be

conveniently accessed, easily shared, and saved for later use; all in a matter of

seconds. The content produced on the Internet is used by a variety of people with


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different interests: scientists, students, athletes, business owners, governments,

etc. Its advantages extend to multiple demographics, making it a central access-

point for information for the entire world. As more people become connected to

the Internet, the industries created by it will continue to grow.

Being that LinkedIn is classified under the Social Networking specialization, these

analyses will not primarily address video sharing websites, streaming platforms,

etc. While examples such as these possess social networking elements, they do

not have a primary focal point of connecting people. Those that do focus on

connecting users, are LinkedIn's primary competitors: Facebook (FB), Twitter

(Twtr), Google+ (GOOG) and Pinterest.

To further define social networking, Investopedia's description will be used

as a reference: "The use of internet-based social media programs to make

connections with friends, family, classmates, customers and clients. Social

networking can be done for social purposes, business purposes or both. The

programs show the associations between individuals and facilitate the acquisition

of new contacts" (Investopedia 2015). So in short, social networking can be

interpreted as traditional networking translated to an online platform. On these

online platforms, users create a profile which serves as a home for their personal

information, shared information and visualizes their connections to other

individuals who visit said profiles; because of the connectivity the Internet

provides, connections and relationships can be forged that usually would be

difficult to create without such means.


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While LinkedIn and its competitors have seemingly different focal points,

they all share the foundation and emphasis of connection building. LinkedIn

targets professionals and businesses, while Facebook, Twitter, Google+ and

Pinterest focus on the social aspect first and business aspect second; so

LinkedIn can be considered a more skewed, tailored social networking

experience than the others in the Social Networking specialization.

Industry History

The origin of social networking dates back to 1997 with the website

www.SixDegrees.com. Six Degrees closed in the year 2000, but its creation set

the precedent for the standard of social networking for the years to come. In

1998, Six Degrees allowed users to search friends lists, a feature that is the

foundation for what social networking is today; the ability to browse and explore

connections-of-connections allows for the possibility of expanding personal

networks.

In the beginning stages, the main issue was the inflow of early adopters

and providing them with sufficient value. The early adopters usually joined the

social networking sites on their own accord, so they did not have real-life friends

on these websites to connect with. Furthermore, many were not willing to sign up

on these social networking sites. As a result, much of the activity on these

websites stopped after the initial sign up process because users found it

awkward to connect with strangers (Ellison 2007).


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In the following years, websites like AsianAvenue, BlackPlanet and

MiGente discovered the advantage of creating niche websites focused on

personal, professional and dating profiles. This solved the issue of users feeling

uneasy about connecting with strangers; these websites created a purpose for

connecting with unknown people. Just like Six Degrees had done, AsianAvenue,

BlackPlanet and MiGente set another precedent for those social networking sites

to come in later years (Ellison 2007).

In 2002, Friendster launched. It was designed to help friends-of-friends

meet rather than having users connect with complete strangers. Users could view

profiles up to the fourth degree (friends-of-friends-of-friends-of-friends). As users

added friends, their networks' reach expanded (Ellison 2007). LinkedIn uses and

visually displays this design on its website; when searching users, 2nd, 3rd or

4th, appears next to their name to show what degree a person is in relation to the

searcher's network. Friendster had positive intentions and showed promise, but

its databases struggled to maintain the degree of traffic its servers received daily.

Furthermore, fake profiles were proliferated. For Friendster, this gave the

perception that it possessed a lack of concern for protection of user identities. On

the contrary, users found the fake profiles to be amusing and entertaining;

profiles of this nature, classified as parody accounts, are extremely popular in

present-times. The context of the entire situation and opposite perspectives

created a conflict of interest between Friendster and users (Ellison 2007). These

issues, among others, contributed to the downfall of Friendster but like the Social


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Networking sites that existed previously, it helped other social networking sites

get their start. Many of which are still present today. Friendster's major falling

point came when rumors emerged of the company adopting a fee-based system

and users encouraged each other to gravitate to alternate platforms.

In 2003, social networking sites became mainstream and the Internet was

exposed to the likes of websites such as LinkedIn, MySpace, etc. MySpace was

one of the first social networking sites to become a global phenomena: Bands

and promoters were able to use MySpace to grow their fan bases, fans were able

to connect with and communicate with bands, users could personalize their

pages (backgrounds, layouts, plugins, etc.) and teenagers joined in large

amounts to connect with their favorite bands and friends at ease. From the

promise that surrounded MySpace, News Corporation was proceeded to

purchase it for $580 million in July 2005, drawing major attention to the website.

While Friendster, Six Degrees, and MySpace built the foundation for those social

networking sites existing today, they also sparked the initial conversations about

privacy concerns: MySpace faced issues over adult users attempting to solicit

minors; the possibility of identity theft since personal information was being

posted on public profiles; the legality and jurisdiction of law enforcement to

access content on users private social networking profiles. Many of these issues

are still drawing discussion and debate in the present day, and they most likely

will remain a factor as long as cyber security is a concern (Ellison 2007).


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Industry Snapshot

The social networking industry has been growing rapidly in recent years

with the technological advancements the economy has experiencing. The trend

of technology going mobile has been a major contributor to social networking

growth; people always have accessibility to their favor websites. Prior to the

mobile trend, the number of adults using social media was low: specifically, 8% in

2005. In 2014, that number has increased to 65% of all "online adults". Of that

sample, the majority use Facebook, followed by LinkedIn, followed by Twitter

(Pinterest preceded Twitter, but it is not publicly traded) (Bidnessetc 2014).

Facebook also possesses the majority of the market share at 74%, with Twitter

and Pinterest following with percentages of 7.51% and 7.48%. For social media

websites, the ability to share information is an essential feature for consumers

and these platforms provide an environment to easily share information of any

type and for any audience as opposed to LinkedIn, where "professional" and

business-oriented information is typically shared (Bidnessetc 2014).


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To further highlight the industry growth, this chart displays the three-year

revenue growth for top social media competitors (Bidnessetc 2014). Twitter has

been a focal point for many business and their marketing efforts, which has been

driven by an increase in smartphone usage; users can easily interact with

businesses in a "conversational" manner. The advantage of using Twitter as a

platform for maintaining customer service is too rewarding to overlook. LinkedIn

has also seen rapid growth in revenue streams from its business model,

becoming more effective with changes in talent acquisition methods. Businesses

and professionals are flocking to the website to network, and for the transparency

it provides into connections. More so, it is increasingly efficient to use because of

the mobile aspect of the technology. Facebook, always a major revenue driver for

the industry, has also benefited from technology becoming increasingly mobile as


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it continues to expand on existing revenue streams and add new drivers (i.e.

WhatsApp and Instagram acquisitions).

As the Internet becomes more accessible for people globally, the social

networking industry will continue to see strong growth patterns. The likes of

technological contributors (smartphones, laptops, tablets, etc.),

telecommunication, etc. will drive the growth for social media sites for years to

come.

Ethics & Current Events

Since social networking sites facilitate the interactions of people on a

mass-scale, ethical issues are unavoidable. The main ethical discussions involve

privacy, connectivity and societal terms. Issues such as these exist in traditional

networking as well, so it is natural that they translate to social networking.

With social networking, the rise of big data has turned social networking

into fields of research. Big data comes from the outputs that are produced from

various inputs on a mass-scale. Each of these outputs can be analyzed for

implications and decision-making. Since technological advances have made it

easier to analyze data, social networks are considered "a space that is watched"

by social psychologists like Ilka Gleibs (Jayson 2014). This means that the

information users believed to be private, is hardly deemed as such. Information

used to identify users is not provided without the consent of consumers but there

is the opportunity to notice trends, traits and behaviors of social network users.


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Facebook data scientists were able to determine the progression or regression in

communication levels between parents and children as they proceed through

various life stages. Microsoft was able to identify women at risk of postpartum

depression. Companies like Facebook and Microsoft use this information they

gather from data mining to make better business decisions and create more

tailored experiences for users, but many users do not realize their information is

being used in such a manner (Jayson 2014). Many may not be accepting of the

fact that researchers for these companies are using them as "test subjects". This

raises concerns over what private and public space actually implies. Is it ethical

for researchers to analyze user data on social networks when it is allegedly

private? How can researchers be sure the data is accurate? How will the data be

used? If researchers can easily access this data, then what is stopping others

from doing the same with ill will in mind?

Much of the confusion about privacy on social networks can be explained

by the privacy paradox. Susan Barnes addresses this dilemma in her article "A

Privacy Paradox: Social Networking in the United States." The paradox stems for

the belief that users are keeping their information private from other base-level

users, without considering the high-level users. The high-level users (government

agencies, marketers, corporate workers for the social networks, etc.) have the

ability to collect personal data from people (Barnes 2006). Marketers for

example, examine social networking websites like Facebook and Twitter to

analyze trends; to see what people are discussing; to discover what their


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problems are. Based on this information, they create profiles that can assist their

operations and business endeavors in effectively interacting with the very

group(s) of users that were being studied. In this sense, privacy on social

networks seems to be an illusion. When "private" information is entered, it is

stored in a database. A database that is owned, managed, and analyzed by the

high-level users.

As long as social networking exists, privacy will be an issue. Why?

Because there are misinterpretations of what is deemed private. There are data

breaches where thousands of users' information is exposed; recently, Sony and

Target were two large-scale companies who experienced the result of privacy

invasion that people were concerned about. Companies who have users entering

and storing personal information on their websites must properly educate and

inform them of the risks and implications that come with doing so, to protect their

reputations (Barnes 2006).

Privacy is an issue that tends to overlap other unethical areas of

discussion for social networking; the Internet connects people with each other on

a mass-scale, and the majority of their interactions online are private. Because of

this, it is possible for illegal activity to occur more easily than it would with face-to-

face interactions. ISIS, for example, is a terrorist group that monitors and utilizes

social media for its benefit. It searches for law enforcement and military accounts

to plan attacks, hackings, etc.; any weakness it can exploit (Ross & Meek 2014).

It also uses social media to recruit potential terrorists and display its actions to


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the general public. It has learned how to interact directly with its audiences and is

taking advantage of its ability to spread information (Sigel, 2014).

Along with terrorism, drug trafficking is another unethical use of social

networking. Silk Road was an online marketplace that allowed users to exchange

drugs, paraphernalia and other illegal items anonymously with the virtual

currency: Bitcoin. Recently the owner of Silk Road was convicted on all charges

for his involvement. This is monumental because websites typically weren't held

accountable for illegal activity conducted on the platform. This case could

possibly serve as a precedent for future incidents involving illegal activity on

social networks and ultimately change policies on digital free speech (McCoy

2014).

Both privacy and connectivity elements of social networking have societal

impacts, but there are some positive effects of such. Crowdsourcing for

charitable acts has become increasingly popular and effective. Charity typically

takes a number of volunteers and participants to be successful. This usually

takes a lot of planning, coordination, and networking to get people on board for

an effective cause; in recent years the likes of social networking has made this

process much more efficient and effective. People take to Facebook, Twitter,

Instagram, etc. to develop a following and support for what ever cause they are

trying to push. Many of these causes generate a large amount of publicity and

generate more support than originally anticipated. One example is the ALS Ice

Bucket Challenge to raise money for ALS Disease: participants would pour a


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bucket of ice water on themselves and nominate three others to partake in the

challenge. Between July and August, $4 million was raised through the efforts

and 70,000 new donors joined the cause (ALSA 2014). Along with the ALS Ice

Bucket Challenge, many other social awareness acts have prevailed on account

of social networking: amber alerts, lost animals, etc. (Scott 2014).

Industry Benchmark The industry benchmark showcases LinkedIn and its main competitors in

the social networking industry. The benchmark originally included Facebook,

Twitter, and Google+(removed because it is privately owned) because they are

the largest social media platforms and they offer the same features that allow

users to connect with each other. These social networks are free for anyone to

use, but they offer extra paid-for features for use. It is often difficult, but extremely

important for social networks to find a mean to drawing revenue.

Relative to revenue, Facebook is the strongest company; cracking the

billion-dollar mark in 2010. It has increased revenues by over $1 billion each year

since. Facebook also displays the strongest key ratios over its competitors, but

has experience declines. Gross profit margin decreased from 77% to 75% from

2010-2013 and net profit margin decreased from 19% to 0.6% from 2010-2012,

but jumped back up to 19% the following year.

LinkedIn follows Facebook in revenue; it steadily increased from $243

million in 2010 to approximately $1.5 billion in 2013. Its margins are significantly


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lower and unsteady. Likely because its business model is more complex and its

products are priced on a value-basis. It has remained profitable; the net profit

margin ratio was 6% in 2010 and 1.7% in 2013. The majority of the key ratios

mimics this slope except for the gross profit margin; increased from 2.77% to

3.5% from 2010-2013.

Unlike the other social networking companies, Twitter’s financials have

been seemingly unstable since becoming publicly traded. While revenues have

increased from $28 million to $665 million from 2010-2013, some of its key ratios

are in the negative. In 2013 its net profit margin was -97%; return on equity was

19%; return on assets was -22%. Financially, Twitter is displayed to be

significantly weaker in performance compared to Facebook and LinkedIn.

Overall, the industry has performed well over the four-year timeframe

presented in the benchmark. Total revenues have been increasing steadily

between the major competitors and do not seem to be slowing down any time

soon.

Stock Summary

Note: All three companies have not paid dividends.

Note: Facebook is the least risky investment.

Company Symbol Stock

Location Common

Stock

Market Value (as of

04/09/15) Beta Coefficient Dividend yield & Payout

ratio LinkedIn LNKD NYSE 109.39M $256.14 1.23 N/A Facebook FB NYSE 2.24B $82.17 0.78 N/A Twitter Twtr NYSE 634.51M $52.17 N/A N/A


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CAGR 2010-2013

LinkedIn – 109%

Facebook – 33%

Twitter – 691%

Industry Average – 277%

The CAGR analysis measures the compounded annual growth rate of

sales and market shares of a company. The industry average (compiled by top

competitors in social networking industry) is 277% from 2010 to 2013. Twitter

displayed the largest growth rate at 691%. The extreme level of growth offset the

industry average, making Facebook and LinkedIn seem to be underperforming.

On the contrary, LinkedIn has grown 109% and Facebook has grown 33%. Each

company has reaped the benefits of the boom in mobile technology and the

increased levels of connectivity people are experiencing around the world. As the

companies continue to make acquisitions and add new features for consumers,

these levels of growth can be expected to continue increasing.


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PESTEL Analysis

Political/Legal

Social media has granted people more of a voice than ever. Information

can be spread more quickly, opinions/issues can be shared and observed more

effectively, and relationships can be created among those with similar

perspectives. In short, the Internet has added more power to freedom of speech.

With this increased freedom, comes issues that are tough for governments to

address. Social media has been used to coordinate protests, create groups to

oppose or start some political movement; basically create followings focused on

pushing the idea of change. While these ideas may have been developed with

peaceful minds, they still present the threat of violence (Shirky 2011). The

increase in communication among citizens creates a complex dilemma for

governments globally. Collective action online tends to stimulate more discussion

rather than positive action in political affairs, hence why many governments

censor what citizens can publish on online networks (Shirky 2011). For the

United States, censorship of public speech is unconstitutional, but levels of

censorship are a possibility in the future.

Net Neutrality has been a major political debate in the United States that

brought change to the way the Internet works. Net Neutrality is the concept of

Internet traffic being equal for all users, from corporations to small businesses

(White House 2014). Many believe the Internet’s rapid growth is dependent on


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Open Internet and President Barack Obama pushed the FCC to ensure

uninhibited access to content, which it adopted on February 26, 2015 (FCC

2015). Without Net Neutrality, Internet traffic would be prioritized for those who

pay the most for it. Content access would be slowed down, holistically causing a

decline in the accessibility to information. Content would also be blocked at

Internet Service Providers discretion. An arrangement of the sort is not fair, nor

helpful to Internet users. Restricting the Internet would stunt the competition,

innovation and connectivity that the economy has seen with the Internet's growth

(White House 2014).

Economic

Social technology has experienced growth rates that exceed any

preceding technologies. Like any element, growth is stimulated by use: as more

people in the economy continue to use social platforms, it will grow more quickly.

Researchers are able to analyze the how these platforms create value as the

data used for analysis becomes increasingly available (Mckinsey Global Institute

2012). Since economies are improving and more people are being exposed to

the likes of "social technology", this advancement is inevitable.

The manner in which the economy stimulates technological advances is

reciprocated by the technology itself. Social Media, as it becomes more

advanced, has created new ways for business to draw in consumers and

revenue. Research and Development, Marketing and Advertising, Sales are


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some business departments that benefit directly from the likes of social media; It

assists in creates jobs, connections with consumers and better research projects.

The economy and social technology complement each other and should continue

to do so.

Sociocultural

Social Networking's influence across cultures is increasingly powerful as

well. In Bill Gate's Annual Letter for 2015 for example, he touched on the subject

of using online classes to educate those in developing countries. Online classes

have become an increasingly credible source of education in recent years in the

United States, many prominent colleges offer programs such as Online MBA's for

those with less time at their disposal. Bill Gates believes that this concept could

be applicable to developing worlds as well to close the educational gap that has

kept many countries in the developing stage for much too long (Gates 2015).

Social networking bridges communicative gaps between cultures and it is

important that varying cultures make use of its advantages. Those that sensor

the Internet (i.e. North Korea, Saudi Arabia and China) are only stunting the

development of their cultures blocking them from the rest of the world (USA

Today 2014). The more players in the Social Networking universe offering

different perspective, the more change the industry and the world will see.


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Technological

Of all the factors in the PESTEL analysis, technology has the most direct

influence over the development of social networking. As technology becomes

more advanced, new acts of innovation are seen that improve connectivity of

people on a global scale. Internet access is becoming more readily available and

smart devices (phones, tablets, watches) have made it easier for people to

access means of social networking. Social networking has gone mobile in recent

years, hence why there is a new "gold rush" to create the next big app or web

client.

Snapchat is a relatively new social networking platform that has yet to

become publicly traded, but its been breaking new ground in how social networks

operate. Users can post up to 10-second photos or clips for all their friends to see

or a select few, and the post will disappear forever. Snapchat realized that instant

gratification has become increasingly popular due to the increased accessibility

of information the Internet has provided; people seem to have shorter attention

spans. This prompted Snapchat to create a platform that capitalizes on the

concept of instant gratification, and the short attention spans Internet users

seemingly share (Techcrunch 2014). People want content, and they want to be

able to gather and interpret it quickly; present-day Internet has conditioned the

public in that manner. Snapchat exemplifies how technology changes the social

networking platforms people use everyday.


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Environmental

Regarding influence on social networking, the environment stimulates its

social media indirectly rather than directly. Weather, natural disasters, etc. can

affect Internet usage, which subsequently leads to a decline in social media

usage; but the environmental organizations are the direct contributors to social

media. They engage users on social networks and promote change,

improvement and preservation of the environment. For organizations with a

philanthropic cause, social networking is arguably the best mean to reaching and

engaging an audience (Russ 2013). In summary, environmental factors create

environmentally minded organizations, which stimulate and use social networking

to create a following.

PORTERS Five Forces Model

Rivalry To be profitable in any given industry, a company must find and sustain a

competitive advantage over other companies. In the Social Networking industry,

rivalry among competitors is high and stiff. Generally, many social networks offer

the same appeal and value: connecting with others. Frequent technological

innovations can create a shift in those in the forefront of the social networking

industry in no time. Furthermore, different audiences require different approaches


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which makes it difficult for some social networks to expand their reach, and

difficult for some to concentrate it (Forbes 2014).

LinkedIn is a niche social networking site, focused on the professional

audience. The company has a loyal consumer base because there aren't many

major competitors that seek to connect professionals via social networks. With

this, its competitive advantage seems to be sustainable, but there is hardly any

opportunity for LinkedIn to reach out to other audiences. More so, it doesn't seem

desirable.

Threat of Substitutes

LinkedIn’s strong following has granted it the title of the largest

professional network in the world, but its offerings are easily duplicated making

the threat of substitutes high, Consumers can substitute LinkedIn’s marketing

solutions for marketing software such as HubSpot or outsource the expertise of

marketing agencies. Talent solutions can be substituted by recruiting firms and

job boards. Professional networking in person is still a strong option as well.

Bargaining Power of Suppliers

Suppliers hold moderate power in the Social Networking Industry as they

provide the software and hardware for the Social Networking platforms to operate

on. There are only a few suppliers offering a majority of the software and


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hardware but the social networking platforms have large enough followings to

give them power over the suppliers (Forbes 2014).

Buying Power of Consumers

Since there are a large number of social networking platforms available to

use, consumer bargaining power is high. Many consumers choose social

networks based on particular interests, and may use multiple social networks

consecutively as well. Social networking platforms need to focus on providing

users with an exceptional experience to retain them (Forbes 2014).

Platforms that do not have a niche and cater to a more general audience

like Facebook, Twitter and Google+ experience more difficulty in managing the

high buying power of consumers as opposed to the likes of niche-based social

networks. LinkedIn for example, does not have be as concerned about the low

switching costs consumers have because LinkedIn is the only major social

network for professionals.

Threat of Entrants

The threat of entrants is high because e-commerce has low barriers to

entry and the advances in mobile technology have made it easier for businesses

to take advantage of the opportunities available (Forbes 2014). Anyone with the

expertise can create a social networking site tailored for a certain group.

Farmersonly.com is a recent example that brings together dating-hopefuls with


29

farming backgrounds. New entries may not affect major players in the Social

Networking industry; they may not affect any players at all if their niche

concentrated enough. Based on current trends, preexisting social networking

platforms should focus on their mobile app development since mobile app usage

is on a steady incline. Smartphones are becoming the norm in the cellular phone

industry, and with each smartphone update, there is opportunity for a new

application to be created. Furthermore, smartphone users are becoming younger

which expands the market.

Chapter Two Summary As a whole, the Social Networking industry is set to experience steady growth.

Schools are becoming more technology-oriented with studies and supplies used;

the general population is becoming more technology-inclined and it's becoming a

necessity to understand how to use it. Naturally, people are going to be using the

technology at their disposal to connect and communicate with others, and the

more the technology is used for such, the more social networking websites will be

able to understand what works and what doesn't for the consumer. This will help

them create better updates in the future.

Opportunities for social networking will arise in the health and education

sectors in the future. Technological advancements making the Internet

accessible in previously remote areas will allow foreign healthcare and education

advocates to extended their reach across cultures. Students in Africa will be able


30

to attend classes that are taught by teachers located in other countries. Foreign

healthcare professionals will be able to communicate with doctors and nurse in

developing countries and guide them with treatments, surgeries, etc.

While there are positives in the advancements of social networking, they

cannot exist without negatives. Improved technology has made protecting privacy

rights a major concern. Data breaches at Sony and North Korea's government for

example, highlight the dangers that come with the level of connectivity that the

Internet creates. The Silk Road scandal displays the illegal activity that can occur

through social networking. There is the Net Neutrality debate as well, that can be

detrimental to smaller scale webpages looking to gain traffic and provide content

to Internet users. Basically, as the Internet grows, there will be a heightened

concern of controlling it; this would affect social networking and what can be

posted on those platforms.

The future of social networking has many opportunities poised to appear in

the industry and there are as many threats poised to appear along with them.

Those who will prevail with time are those who properly research, prepare and

adjust for the forthcoming technological trends.


31

Chapter 3: Firm Analysis

Company Background The founding of LinkedIn can be dated back to 2002. Former CEO Reid

Hoffman gathered a group of his former colleagues from SocialNet and PayPal to

in his living room to discuss the plans and vision for LinkedIn. The chosen team

consisted of Allen Blue, Kostantin Guericke, Eric Ly, and Jean-Luc Vaillant. The

company showed enough promise early in its life for Sequoia Capital to invest in

it during the fall season of its first year (LinkedIn 2015). Around springtime,

LinkedIn officially launched: May 5th, 2003. The promise Sequoia saw in LinkedIn

was validated by the end of its first month; they totaled at 4,500 registered

members (LinkedIn 2015).

As traffic increased, LinkedIn sought methods to attract more attention to

its website. The leadership found it feasible to give users the ability to upload

address books to sync their preexisting contacts with LinkedIn. It also agreed to a

partnership with American Express to promote offerings to business owners. To

facilitate interactions among businesses and members, LinkedIn provided the

option to create and join groups that shared similar interests (LinkedIn 2015).

LinkedIn continued to see its member size grow throughout 2005, when it

introduced the first revenue streams: Jobs and Subscriptions. LinkedIn Jobs

allowed business to post job listings and users were able to search and apply for

them. Subscriptions offered extra features that made the LinkedIn experience


32

more effective for the consumer (LinkedIn 2015). These premium features helped

LinkedIn see its first profitable year in 2006. This was also the year when

LinkedIn launched public profiles, which allowed unconnected users to view

profile pages with limited accessibility. It also implemented an algorithm allowing

users to see other users whom they may know, but are not connected with.

Users were also given the ability to make recommendations for connections for

businesses and professionals to see (LinkedIn 2015).

As LinkedIn continued to grow, then CEO, Reid Hoffman decided to run

the company’s product sector. He named Dan Nye as his successor in 2007. The

following year LinkedIn opened its first international office in London (LinkedIn

2015).

Another leadership change occurred in 2009 when Jeff Weiner joined as

President, eventually shifting to the CEO position. His presence and actions

changed the focus of the company and helped employees better understand

LinkedIn’s mission, values and strategic priorities. This facelift led to acceleration

in growth for LinkedIn in 2009; they totaled 90 million members and around 1,000

employees in 10 offices globally (LinkedIn 2015).

Based on the rate that LinkedIn was growing, it decided to become a

publically traded company in 2011. To maintain its levels of growth and credibility

since it was a newly declared IPA, it launched Project Inversion in 2012 to

redesign its infrastructure. Its plan was to simplify and grow everyday (LinkedIn

2015).


33

LinkedIn’s growth continued to increase, hitting 225 million members in

2013. After that milestone, it launched the Economic Graph project in 2014. The

project’s vision is to solve challenging economic problems to connect

professionals and business with more opportunities (LinkedIn 2015).

Vision and Mission In order for a company to be successful, it must have a vision of its future

in the midst of the competitive environment. With a vision, it can identify the

actions needed to reach the level of success it’s seeking. The mission states

what the company’s purpose is and the company’s goals.

LinkedIn sees itself being a leader in connecting professionals with

economic opportunities, other professionals, and businesses. Its Economic

Graph project displays its progress in maintaining that vision (LinkedIn 2015)

LinkedIn’s mission is to connect the world’s professionals to make them

more powerful and successful (LinkedIn 2015). Its mission sets it apart from its

social networking competitors and develops its niche-status. It seeks to provide

professionals with the tools to establish profiles online, interact with contacts and

expand their networks, and share information, ideas and insights for better

decision-making.


34

Snapshot

The above graphics displays the revenue (dollar amount and percentage)

from LinkedIn’s operations ending in 2014. It’s main revenue streams are

distributed between Premium Subscriptions (Consumer Solutions), Market

Solutions, and Talent Solutions. Its Talent Solutions, and extension of the initial

LinkedIn Jobs, generate the majority of total revenue with $369 million dollars

(57%). Market Solutions follows with $153 million (24%) and then Premium

19%

24% 57%

Revenue

Premium Subscriptions

Market Solutions

Talent Solutions

121 153

369

0

50

100

150

200

250

300

350

400

Premium Subscriptions

Market Solutions

Talent Solutions

Revenue

Dollars (in millions)


35

Subscriptions with $121 million (19%). Its total 347 million registered users in

over 200 countries and territories as of 2014 further display LinkedIn’s current

operations. Over 39 million are students and recent grads; as LinkedIn’s fastest

growing demographic, this market seems to be area of focus. By region, it has:

110M+ members in EMEA, 84M+ in Europe, 64M+ in Asia and the Pacific, 12M+

in Southeast Asia, 6M+ in DACH, 14M+ in MENA and 48M+ in LATAM (LinkedIn

2015).

Ethics & Current Events Since becoming an IPO in 2011, LinkedIn has experienced a number of

events that drew ethical concerns from the general public. Some of these events

exemplify the greater concerns that people have with the Internet and the

information they share on it.

Cyber security has always been a huge issue, and as technology

continues to improve, the emphasis on it will remain high. 2012 marked a year in

which LinkedIn’s cyber security was tested and its servers were breached.

According to security researchers, Russian hackers were able to hack into the

LinkedIn system and steal more than 6 million user passwords, which they

proceeded to leak on the Internet (CNN 2012). Apparently, LinkedIn had been

using a security method that was weak and outdated. It neglected to add another

layer of security called “salting” that would significantly decrease the risk of

successful security breaches. Its failure to protect its users privacy displayed a


36

mentality that other Internet companies may share as well: a lack of emphasis on

securing user information. This draws back to an issue in social networking about

what is really considered private and what measures are being taken to ensure

privacy for users. To maintain a reputation of integrity and good will,

organizations that store thousands of users’ personal information should prioritize

on maintaining the highest standard of security that is attainable. For social

networking to remain reliable and safe, cyber security must be effective.

Otherwise companies like LinkedIn and other companies using the Internet will

see a negative response from the public, and ultimately a decline in business.

Another issue concerning private information arose in 2013. It first started

with Google, Facebook and Yahoo pushing against the government. The

companies petitioned to be able to disclose the exact number of government

requests for user data (Engadget 2013). LinkedIn followed suit with a petition of

its own in September of that year. Its reason for petitioning was to protect its

reputation. By not being able to report the exact amount of government requests

for user data, it seems that all users’ private information is readily available for

the government at any time. Reporting the exact number would provide

transparency into the government’s actions. It implies that the data requested

was for specific reasons, possibly concerning suspicious activity, national

security, etc. Greater government transparency allows the public to have a better

understanding of why it takes certain actions, and ultimately, it makes them feel


37

more comfortable with using websites like LinkedIn, Facebook, Google and

Yahoo. Those in which their private information is stored.

For social networks to thrive they must be assuring that they are for the

public; they must have the people’s best interests in mind. Ensuring privacy is a

major method to do so. Protecting the rights of workforce is essential as well. In

2014, LinkedIn faced the issue of insufficient compensation for worker’s wages,

specifically 359 current and former employees. The workers sought damages for

the overtime hours they claimed to have not been paid for, and LinkedIn obliged.

Settling for $6 million, it admitted to its mistake and displayed its integrity

(Reuters 2014). Without hesitation, LinkedIn acted in the best interest for its

workforce. Implying that the company emphasized on the benefit of others.

Part of LinkedIn’s vision is to provide businesses and professionals with

tools needed to benefit them in achieving goals and completing objectives. With

these three issues, along with others, LinkedIn shows that it seeks to be a

company that exhibits integrity and honesty, which is extremely essential to

conveying the company’s value.

Organizational Analysis

Structure LinkedIn has a divisional organizational structure with CEO Jeff Weiner at

the head. Below him are nine individual divisions, which are separated into


38

subdivisions. The divisions on the tier below Jeff Weiner are: Marketing (Vice

President: Nick Besbeas), General Counsel and Secretary (Vice President:

Michael Callahan), Global Solutions (Senior Vice President: Mike Gamson),

Engineering and Operations (Senior Vice President: Kevin Scott), Chief Financial

Officer (Senior Vice President: Steve Sordello), Corporate Communications (Vice

President: Shannon Stubo), and Global Talent Solutions (Vice President: Pat

Wadors) (LinkedIn 2015).

Other companies in the industry like Facebook and Google are structured

in a similar way, but their means of separating the divisions and subdivisions,

and who oversees those subdivisions differs from LinkedIn. Each company has

an emphasis targeted to specific divisions based on goals and areas of interest.

It has a board of directors consisting of seven members (majority are

independent) that share the duty of serving in the shareholders’ best interests

and to oversee company decision-making at the highest level. The board meets

Board CEO

Marketing Gen. Counsel and Secretary Global Solutions Engineering and

Operations CFO Corporate Communications

Global Talent Solutions


39

periodically at least two times per year. Each year, 1/3 of the board must undergo

elections for a three-year period (LinkedIn 2015). This makes the board very

stable because if shareholders intended on replacing the board, it would take at

least two years to replace the majority. This method of structuring a board of

directors has been criticized and on the decline over the past 10 years; only 29%

of companies on Standard and Poor’s 500-stock index use staggered boards as

of 2011. (NYTimes 2011). Far different from industry norms, it seems that the

structure of LinkedIn’s board will remain the same for many years because 80%

of shareholders must vote for amending the terms of the board, which cannot be

done without help of Class B shareholders who have been supportive of the

staggered board (NYTimes 2011).

The upper management of LinkedIn grew the company with the vision of

connection the world’s professionals and businesses alike, allowing them to grow

and expand their expertise as well. To fully maximize the advantages of using

LinkedIn’s features for it’s users, the company found it reasonable to partner with

external players that offered varying benefits. This has become a significant

piece of LinkedIn’s business model. It began with a partnership with American

Express to promote business offerings to business owners (LinkedIn 2015), an

idea that became a winning formula for the company. In recent years, LinkedIn

has developed a number of partnerships to benefit its users, partners, and to

create competitive advantages in the competitive environment.


40

LinkedIn’s partnerships have proven successful for all parties involved. A

recent example is its partnership with VolunteerMatch. VolunteerMatch, a social

network for volunteers, joined with LinkedIn to help nonprofits recruit qualified

volunteers. Volunteer opportunities posted on VolunteerMatch’s website is cross-

posted to LinkedIn as well. The partnership began in early 2014 and the program

reported two to three times as many sign-ups in comparison to the pre-

partnership model (Corporate Social Responsibility 2014).

Another example stems from LinkedIn’s Consumer Solutions program. In

2013, it partnered with online education organizations such as Coursera, Lynda,

and Udemy to allow users to include their educational experiences outside of

traditional institutions on their profiles; reflective of the increasing credibility of

online tutelage in recent years (The Next Web 2013).

These partnerships create new value for all parties involved. By being

open to partnerships, LinkedIn establishes a mean to remaining consistently

innovative in its competitive environment, and ultimately allows it to sustain its

advantages over the competition.

Leadership

Throughout the course of its existence, LinkedIn has had a few changes in

the leadership. The company started with Reid Hoffman as the CEO in 2002.

Hoffman led the company through its initial growth for four years and then

selected Dan Nye to hold the title. Nye led to late 2009 until current CEO Jeff


41

Weiner was given the position (LinkedIn 2015) (For a list of upper management

and their duties, refer to pg. 28).

Nick Besbeas, the Vice President of Marketing, joined LinkedIn in 2011.

His background includes positions of leadership at Microsoft, MSN, Yahoo!, and

Audience Science (formerly digiMine). He is a considered a pioneer of direct

marketing and consumer intelligence. Besbeas’ educational background consists

of a BA from the University of Illinois and an MA in Economics from DePaul

University (LinkedIn 2015).

Michael Callahan, Vice President of General Counsel and Secretary,

handles the legal affairs at LinkedIn. He previously held positions of leadership at

Auction.com and Yahoo!. Callahan has a B.S. from Georgetown University’s

School of Foreign Science and J.D, from the University of Connecticut (LinkedIn

2015).

Mike Gamson, Senior Vice President of Global Solutions, joined LinkedIn

in 2007 to oversee the Talent, Marketing, and Sales Solutions areas. Leadership

examples of his include Director of Product Marketing at Advent Software, and an

owner of a restaurant and boutique hotel in Costa Rica. He has a BA from

Amherst College (LinkedIn 2015).

Kevin Scott is the Senior Vice President of Engineering and Operations.

He joined in 2011 after overseeing mobile ad engineering at Google, and

engineering and operations at AdMon. He’s held many other leadership positions

at Google and has won awards for his work. His education consists of a MS in


42

Computer Science from Wake Forest University and a BS in Computer Science

from Lynchburg College (LinkedIn 2015).

Steve Sordello is the Senior Vice President and CFO. He joined in 2007

after holding the title of CFO at two NASDAQ publically traded organizations.

Sordello was also a part of TiVo’s management team, and CFO for Ask Jeeves.

His influence brought those companies to financial success. He has and MBA

and BA from Santa Clara University (LinkedIn 2015).

Shannon Stubo is the Vice President of Corporate Communications; she

came into the role in 2010. Her leadership positions prior were: Senior Director of

Corporate Communications at OpenTable, and Vice President of Corporate

Communications at eBay. Her alma mater is Notre Dame de Namur University

where she studied Psychology (LinkedIn 2015).

Pat Wadors is the Vice President of the Global Talent Organization. She

joined in 2013 and leads the company’s Human Resources team. Prior, she was

Senior Vice President of Human Resources at Plantronics, and Human

Resources Executive Advisor to Twitter. Like other LinkedIn executives, she also

held a position at Yahoo! As the Senior Vice President of Human Resources. She

studied at Ramapo College where she received a Bachelor’s in Business

Administration (LinkedIn 2015).

The company does not seem to be anticipating any leadership changes in

the near future; some of the executives are fairly new to their positions, and with

LinkedIn’s growth it does not seem reasonable to make any changes.


43

Culture LinkedIn’s CEO, Jeff Weiner, has been credited with revamping LinkedIn’s

culture and values when he become CEO later in 2009 (LinkedIn 2015). In a NY

Times interview in 2012, Weiner explained his philosophy on values and how

they influences daily decisions, and those values are subsets of culture. He goes

on to describe LinkedIn’s culture consisting of five dimensions: transformation,

integrity, collaboration, humor, and results. The subsets (values) of these

dimensions are: members first; relationships matter; be open, honest and

constructive; demand excellence; take intelligent risks; and act like an owner.

The most important being members first, because without satisfied members, the

company cannot survive (NY Times 2012).

Since Jeff Weiner’s arrival, the culture has been stable. At the beginning of

the CEO transitional period (from Reid Hoffman to Jeff Weiner), Reid Hoffman

told Weiner that as the soon-to-be leader, the decision-making would be

reflective of his own vision (LinkedIn 2012). The situation could have been one

filled with tension and conflict, but the leadership believed in Weiner’s ability to

develop a winning culture that would bring success to LinkedIn as an IPO.

From researching LinkedIn profiles of a select few LinkedIn employees,

the company’s values seem to resonate within the workforce, particularly its

focus on putting members first. The members-first philosophy runs consistent


44

with Google’s values; it ranks at one on its list (Google 2015). Facebook

prioritizes on building social value for the world with every action (Facebook

2015). Twitter focuses on allowing users to express themselves in the best way

possible and to connect with others who want to do the same (Glassdoor 2015).

LinkedIn’s primary value of putting members first is shared throughout the

cultures of its top competitors in the social networking industry.

While its culture is somewhat typical of the social networking industry, it is

still strong. LinkedIn employees are encouraged to act as “owners”, implying that

they should take authority for their work, furthermore, that their work has value in

the larger scope of the business. They are told that relationships matter, a

principal that is reflective in the company’s effectiveness in connecting users with

each other. More so, honest, open, and constructive communication among

those relationships is essential to effective collaboration towards the greater

good. The upper management wants employees to take intelligent risks, because

reward cannot be maximized without some risk. Excellence is demanded

throughout the organization to push the company to the highest level. Lastly,

members come first because the vision and mission of the LinkedIn are centered

on the ability for users to display their experiences, expertise, and connect with

others effectively. The values created by the leadership of LinkedIn have led to

its consistent success since its existence; members-first works if the values

supporting it also empower employees.


45

Marketing Analysis

Product

LinkedIn’s market consists of the world’s professionals. The market is

huge and already divided among numerous groups with varying preferences,

pain points and behaviors; because of this, LinkedIn must have marketing

approaches that cater to different groups. Since LinkedIn’s purpose is to connect

the world’s professionals, they have segmented the market into two groups:

Members and Customers. While employees directly use the products that

LinkedIn sells, it is likely that their employers make purchases for them if it adds

value to the business. The segmentation is stable but there is room for growth if

LinkedIn chooses to split the Customers group into Businesses and Employees.

This is not likely to cause a negative reaction because LinkedIn possesses brand

equity; it produce results and it is the only company producing results on that

level.

The member group consists of users that choose not to pay for products.

They use LinkedIn on the basic level that allows them to: manage their

professional identity (personal profiles), network with other professionals (join

groups, messaging), and gain knowledge about their industries (LinkedIn Pulse

for blog posts).


46

LinkedIn currently has product programs in four business areas for

customers to purchase: Marketing Solutions, Sales Solutions, Talent Solutions,

and Consumer Solutions (Premium). Each program has a variety of products that

are available (LinkedIn 2015).

In Marketing Solutions, customers have access to four products:

Sponsored Updates, Company Page, Content, Custom Apps, Compliance, and

Text Ads. All of which assist companies in improving their marketing efforts

(LinkedIn 2015).

Sales Solutions has two product types available to improve sales efforts

for customers: CRM (Customer Relationship Management) Partners, and

Compliance Partners (LinkedIn 2015).

Talent Solutions offers products for more effective recruiting: Applicant

Tracking System, Job Posting, and Limited Listing (LinkedIn 2015).

To help customers provide great consumer experiences, the Consumer

Solutions’ products consist of: Professional Productivity, Mobile Partners, Add to

Profile for Certifications, and Content (LinkedIn 2015).

Place LinkedIn draws revenue from two areas: online sales and field sales

(Statista 2015). The online sales consist of purchases of its premium products.

From 2009-2014, the majority of revenue came from field sales with 64%. The

field sales likely consist of resellers and agencies that purchase the premium


47

products. With both channels, LinkedIn has leverage over those using its

products because there are no other competitors with as large of a professional

network.

Pricing Since the customers that use LinkedIn vary in the value they posses,

LinkedIn’s prices for its solutions are based on need or value-based. Forbes

Magazine explains that the value is based on how much they choose to pay, so

ranges vary from $10 - $119/month (Forbes 2015).

Promotion LinkedIn’s unique selling proposition is to offer tools to assist in

professional and business growth. It began with marketing directly to personal

and business contacts, which then opened word-of-mouth promotion. Address

book uploads were an added in feature in 2003, making it easier for users to

create online relationships. The following year LinkedIn partnered with American

Express to promote to small businesses. Recently, LinkedIn has begun to take

advantage of the media channel by allowing users to publish and share their own

content (Business Insider 2013).


48

Information Systems Analysis

Information systems are key to the success of business operations in the

social networking industry. LinkedIn constantly updates its technologies to

provide users with features that allow them to have the best experience possible

while using the platform. The servers experience high volumes of activity day-to-

day; LinkedIn must have sufficient technology to manage the traffic effectively.

LinkedIn sends large amounts of emails to its users daily using a product

from Message Systems called Momentum. Many websites with similar needs use

Momentum to manage email traffic: Facebook, PayPal, Twitter, Groupon,

Comcast, etc. (Message Systems 2015). Momentum aims to provide consumers

with the tools needed to achieve and maintain the highest level of engagement

possible, while maximizing revenue. Users expect LinkedIn to inform them about

messages received, profile views, invitations, and other notifications; outsourcing

an email platform allows LinkedIn to effectively perform this process.

Due to the large amounts of personal data stored on LinkedIn, security is

an important factor as well. In chapter two of this report, a recent security

breaching of LinkedIn was discussed. It had failed to maintain a level of security

for its users that it was capable of based on the resource it has. In response to

the hacking, LinkedIn added two-factor authentication as an extra layer


49

protection. The new system requires users to confirm their identities using a

combination of two different pieces of personal information (CNET 2014).

While the two-part authentication and email platform were considered to

be necessities, LinkedIn added features that provided extra incentive for users to

rely on its services for their professional branding and networking needs.

LinkedIn adopted an application system that Facebook initially used provide

users with a more fun experience. LinkedIn’s InApps are more value-oriented for

professional needs; the embedded applications allow users to sync blog posts to

their profiles, import files, share and recommend books, collaborate on projects

online, and much more (BusinessWeek 2008).

Applications became popular around the same period where technology

made the transition to mobile. LinkedIn implemented its mobile technologies in

February of 2008. Since then, many of its features have become separate mobile

apps: LinkedIn, Connected, LinkedIn Jobs, Pulse, Recruiter, Sales Navigator,

and SlideShare (LinkedIn 2015). The increase in smartphone usage created a

demand for all websites to become mobile accessible.

InApps, mobile accessibility, security, and Momentum are some of

LinkedIn’s core technologies. Overall, they make the LinkedIn experience easier

to use and more beneficial to the user. They contribute directly to its vision and

goals of connecting the world’s professionals while allowing them to manage their

personal and company brands.


50

Financial Analysis

Liquidity Ratios

Current Ratio

The current ratio is an assessment of a company’s ability to pay back

short-term liabilities; the higher the ratio, the more capable a company is in

repaying debts. Furthermore, it is an element of financial health. LinkedIn’s

current ratio has been consistently lower than the industry average since 2010. It

came closest to the industry average in 2010, mainly because Twitter had not

provided the required information to calculate its current ratio, resulting in the

data being skewed. While LinkedIn may be some distance from the industry

average, it has been on the incline since 2010. The industry average increased

steadily and steeply until 2012, and then started to decline. Based on this

0

1.5

3

4.5

6

7.5

9

10.5

12

13.5

15

2010 2011 2012 2013

LNKD Current Ratio

Industry Avg


51

observation, it can be concluded that LinkedIn is improving its ability to pay off

short-term liabilities and is performing better than the industry, which is

underperforming in its ability to do so.

Activity Ratios

Total Asset Turnover

The total asset turnover is a measurement of the amount of revenue

generated for every dollar value of assets a company possesses. A high asset

turnover ratio indicates the effectiveness of a company’s ability to generate

higher amounts of revenue with fewer resources. Knowing the total asset

turnover ratio is important to the understanding of a company’s profitability.

LinkedIn’s asset turnover is positively correlated with the industry average, both

peaking in 2011 and declining thereafter. The decline shows that both the

industry and LinkedIn have not been using assets effectively to generate revenue

in recent years. It should also be noted that LinkedIn is the primary driver of the

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2

2010 2011 2012 2013

LNKD Asset Turnover

Industry Avg


52

industry’s total asset turnover ratio because it is the most revenue-oriented

company in comparison to the other social networking platforms.

Debt Ratios

Debt Ratio

The debt ratio is a measure of financial leverage; more so, a display of

how much of the company’s assets is financed by debt. The higher the ratio, the

more financial risk is associated with the company. This is because companies

with higher debt ratios have more obligations to make repayments on liabilities,

reducing the amount of financial flexibility. Overall, this ratio can be used to

determine the amount of risk that comes with investing in a company, and if the

investment is reasonable. A debt ratio greater than one indicates more debt than

assets, while a debt ratio less than one indicates more assets than debt.

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

2010 2011 2012 2013

LNKD Debt Ratio

Industry Avg


53

LinkedIn’s debt ratio is positively correlated with the industry average, but

its year-to-year ratios have been higher since 2010. The highest point was in

2010, where LinkedIn had a debt ratio of 0.84 and the industry debt ratio was

0.48. Since then both ratios have declined significantly; a good sign for investors

because LinkedIn and other companies in the industry are low-risk investments.

Equity Multiplier

The equity multiplier is also a measure of a company’s financial leverage.

In a sense, it is very similar to the debt ratio. The ratio assesses the proportion of

a company’s assets that are financed through equity rather than debt. High equity

multipliers indicate that a larger piece of the company’s assets are financed by

debt instead of shareholders.

In 2010, LinkedIn and the industry showed high equity multipliers (6.6 and

3.9) and the declined to values of around one in 2013. From this observation, it

can be inferred that purchasing assets through debt was a more effective option

0

1

2

3

4

5

6

7

2010 2011 2012 2013

LNKD Equity Multiplier

Industry Avg


54

for LinkedIn and other companies in the industry to start because high levels of

growth were expected, meaning it would be easy to pay off debts. Since 2008

technology has seen significant advancements, which makes sense of the idea

that social networking platforms would be able to grow quickly and strongly as

well. Once a certain level of growth was achieved, these companies were able to

self-finance their assets or issue shares. The equity multiplier by itself does not

effectively display a company’s financial leverage because there are advantages

to financing assets through debt or shareholders but it does offer better

transparency into financing methods, which is important to know in various

economic conditions. More emphasis on debt financing means there is chance of

default; more risk. Financing through equity allows the company to focus on

using capital to grow the business. For a company like LinkedIn, equity financing

is more attractive because cash flows are unsteady and the industry is constantly

changing so regular loan payments can be detrimental to operations.


55

Profitability Ratios

ROE

The return on equity is a profitability ratio that measures how much profit is

generated from the money shareholders have invested in the company. There

are numerous methods in calculating return on equity, but for this analysis, the

ratio was calculated by dividing net income by total equity.

Both LinkedIn and the industry showed a decline from 2010 to 2011, with

LinkedIn having a higher ratio than the industry. Since 2011, LinkedIn’s ROE has

been steady around 0.01 and the industry has fluctuated from -0.054 to 0.006 to

-0.026. Although ROE for LinkedIn has been consistently low since 2010, it has

remained profitable, contrary to the industry trend. A main struggle for social

networking sites is monetization, which is highlighted by the low profit margins

throughout the industry. Social networks are typically free for users with optional

-‐0.1

0

0.1

0.2

0.3

0.4

0.5

2010 2011 2012 2013

LNKD ROE

Industry Avg


56

premium features because consumer engagement is the initial goal; many have

to rely on advertising to generate a steady revenue flow. LinkedIn shows higher

profitability because its business model offers products that add value to the user

experience. Platforms such as Facebook and Twitter are still developing other

revenue streams that can be reliable aside from advertising.

Net Profit Margin

While ROE measures profits that are generated from shareholder

investments, the net profit margin ratio measures the ability to generate profits as

holistically from operations; the amount of profit that is generated for each dollar

in sales. For investors, a high profit margin is very desirable because it shows

how well a company can control its costs.

The social networking industry is not highly profitable, but LinkedIn has

managed to remain above the industry average since 2010. The industry average

peaked at -0.074 in 2012 and LinkedIn has remained positive: from 0.061 in 2010

-‐0.8

-‐0.7

-‐0.6

-‐0.5

-‐0.4

-‐0.3

-‐0.2

-‐0.1

0

0.1

2010 2011 2012 2013

LNKD Net Pro]it Margin

Industry Avg


57

to 0.017 in 2013. Once again, because monetization is tough for players in the

social networking industry, low levels of profitability can be expected.

DuPont Ratio

DuPont Identity

The DuPont Identity further examines a company’s ROE based on how

the net profit margin, total asset turnover, and equity multiplier elements act on

each other. The formula is: ROE=net profit margin x total asset turnover x equity

multiplier. ROE tends to not be an effective measure for the social networking

industry because margins are too low to make a sound judgment on company

performance relative to profitability. The DuPont Identity provides a deeper look

into which business processes are driving gains; more insight allows investors to

make well-informed investing decision.

Once again, LinkedIn and the industry average have moved in conjunction

from 2010 through 2013, with LinkedIn showing a higher ratio each year. Closer

-‐0.1

0

0.1

0.2

0.3

0.4

0.5

0.6

2010 2011 2012 2013

LNKD DuPont Ratio

Industry Avg


58

analysis shows that LinkedIn’s equity multiplier in 2010 drove the movement

DuPont Identity. The equity multiplier was 6.6 in 2010 and dropped to 2.6 in

2010, which indicates the source of the steep decline LinkedIn experienced in

that one-year period. The other elements of the DuPont Identity declined as well,

but none as extremely as the equity multiplier. From this, it can be assumed that

LinkedIn is underperforming in its ability to use assets efficiently and run its

operations efficiently to generate revenue. Since LinkedIn’s business model is

the most revenue-oriented in the social networking industry making it a primary

driver of the finances of the market, it can be determined that the industry is

underperforming in the same areas.

Critical Reflection Based on the entire analysis of LinkedIn’s financial information the

company has been performing on a satisfactory level; it has consistently showed

better performance than the industry average. Its ability to repay debts has been

on the incline, indicating a healthy financial situation. It has become less reliant

on financing the purchase of assets via loans, which reduces the risk of investing

in the company and improves its financial flexibility. Money can be spent on the

business rather than paying back debts. It has also remained profitable, a difficult

task for social networking sites.

On the contrary, there is concern about its ability to generate sufficient

returns for shareholders. While returns have been positive, the growth is


59

questionable. Returns were highest when LinkedIn emphasized on financing

through debt, which is no longer its main approach. Since then gains have

stalled, but remained positive. Furthermore, LinkedIn has yet to pay dividends,

which may also draw some concern for investors.

With that being said, LinkedIn’s mission and goals are focused on

connecting the world’s professionals and providing them with the tools to be

successful in their industries. While it is not extremely profitable, it has shown

that it can effectively generate revenue despite being in an industry where

revenue generation is difficult. Its gains and approach in handling funds have

allowed it to divert money back into the business to develop products that provide

value for consumers. Ultimately fulfilling its mission and goals.

Business Strategy (Generic Strategy) LinkedIn is for professionals of all backgrounds, and its overall success is

determined by its ability to connect professionals with each other. Connectivity is

the primary product that social networks offer; LinkedIn’s generic strategy is to

differentiate itself from other platforms by emphasizing on bringing career-

oriented individuals together. The strategy has been stable because there is

always a constant desire for career advancement and growth in the professional

world, growth that can be achieved in a number of ways.

Compared to industry norms, LinkedIn is very different because it is more

niche-based than other major competitors like Facebook and Twitter. Firms in the


60

industry generally seek to connect individuals with each other, but LinkedIn has

been able to cater to a niche-market that gains monetary benefit from networking.

This makes those consumers in the niche-market more accepting of the idea of

paying for products that can increase their monetary benefit and because of this,

LinkedIn’s strategy can be deemed effective. As long as LinkedIn continues to

offer products that help consumers network and have their careers benefit as a

result, the strategy will remain effective.

Corporate Strategy The corporate strategy of a company tends to be understood as the

approaches that a company adopts in acting on its generic strategy. In order to

successfully maintain the world’s largest professional network, LinkedIn must to

establish various strategic focuses. By catering to specific business areas, it has

been able to achieve its goals.

LinkedIn diversifies itself by providing a platform through which members

can manage their professional identities, develop their professional network,

share knowledgeable content with others, and uncover opportunities in the

business world (LinkedIn 2015). The ability to create a strong personal brand

allows professionals to present themselves as valuable, making them more

attractive contacts for networking. Once a network has been developed,

professionals have the ability to share blog posts, updates and other media,

recommend and endorse the skills of others, and engage in group discussions or


61

private messages. From engaging the network, professionals can find business

opportunities to assist in developing their careers. Collectively, these priorities

add value by catalyzing the act(s) of professionals connecting with each other.

Chapter Summary Companies that are successful tend to be those that understand their

competitive environments and are aware of the factors in it that can create

advantages over competitors. In LinkedIn’s circumstance, its operations reach a

global scale. It understands that it must provide features that appeal to

professionals across various markets, and its system must be able to support the

levels of engagement that come with operating in those global markets.

LinkedIn’s success can be attributed to the strength of its brand, leadership,

culture, and structural makeup. Furthermore, the advancements of the

technological environment have increased the ability for LinkedIn to generate

higher levels of revenue, which allows it to reinvest funds back into business.

Ultimately, allowing it to improve its business processes to create more value for

consumers. Even so, revenue alone is not enough when considering the risk of

investing in LinkedIn. A deeper look into the financials displays positive, but small

margins and an expensive price tag on shares. The stock is low risk, which offers

low reward; it may only seem appealing to very risk-averse investors who are

seeking to hold for the long-term.


62

Chapter 4: Recommendations

SWOT Analysis

SWOT Positive Negative

Internal

- Global Reach - Strong Brand (for

professionals) - Strong Business

Model

- Cyclical stock - User Engagement - Meaningless

Connection

External

- Health Sector - Education Sector - Global

Connectivity

- Privacy rights - Data Breaches - Net Neutrality

(Regulated internet)

Strengths LinkedIn’s strength lies in its global positioning, its brand and its business

model. Firstly, no matter how cliché it may sound, strength lies in numbers. For

LinkedIn to fully realize its full potential, it realized the importance of extending its

reach to markets across the globe. LinkedIn would not be fulfilling its vision if it

only operated domestically; there are professionals in every international market

that can benefit from the solutions that LinkedIn offers. Expansion into new

international markets presents new sources of revenue. In the second quarter of

2014, LinkedIn exemplified this notion with a 45 percent increase in revenue to

$568 million; the projected revenue was $557.49 million. Its talent solutions were

credited with the primary driver for the displayed growth, and it has LinkedIn’s

international growth supporting it (International Business Times 2014). Based on

this trend, further international expansion would result in increased revenues.


63

LinkedIn’s global presence may be a strong driver for its revenues, but it

would have not reached that level of recognition if not for it’s strong brand. The

company started with the intentions of targeting professionals; and today its

branded itself as the “World’s Largest Professional Network”. Having 300+ million

members in 200+ countries surely solidifies its position as such. LinkedIn’s brand

created a cultural movement, a movement of professionals utilizing the Internet

for their networking needs. There are other entities that may allow users to reap

the same benefits, but their brands may not resonate with the values of

professionals. Professionals use Facebook, but it is likely that Facebook is not

their primary platform for business. Twitter is used for both business (marketing

focus) and personal, but it still has a sense of informality about it. The reason

professionals congregate more on LinkedIn for business rather than Facebook

and Twitter is because LinkedIn entered the market with intentions of providing

value for them. When career advisors working for schools across the world guide

students towards becoming a professional, there’s a large possibility that

LinkedIn will be one of the tools they are told to utilize.

There’s a reason for LinkedIn’s brand being so effective: its business

model. LinkedIn offers three solutions that are essential to the success of

professionals of any background: Talent, marketing, and sales. Each solution

addresses a different facet of business that helps professionals and businesses

thrive. Businesses must have strong sales approaches to be successful; they

cannot stay afloat without generating revenue. The key to generating revenue is


64

having a strong understanding of target markets and how to attract consumers in

those markets. While a business can have a solid approach to sales and

marketing, it will not be effective without strong personnel to execute plans to

achieve goals. LinkedIn’s business model addresses each of these elements of

business, which establishes its strong brand and allows it to be a significant

player in the global market.

Weaknesses Since becoming a publicly traded entity, LinkedIn has seen its revenues

increase consistently through the years. The economy is recovering nicely from

the recent recession and Internet-based companies are reaping the benefits of

the growth in disposable incomes nationwide. While this implies a bright future for

LinkedIn, it also raises some concern. LinkedIn’s financial performance is closely

linked to the condition of the economy as a whole. It may be difficult to

understand the correlation between LinkedIn’s financial performance and the

economy, but on a theoretical level, it becomes clearer. LinkedIn went public in

2011; from 2008 – 2010 308,000 jobs in the technology industry were lost. 2011

was the year where technology jobs bounced back and employment levels began

to increase (USA Today 2011). LinkedIn launched as an IPO during a time where

a company of its nature could benefit most, a rebounding job market. The growth

potential was obvious due to its initial stock valuation of $93.09 at its launch.

LinkedIn continued to grow as the economy improved, and today, its stock is


65

priced around $255. While that may be impressive, LinkedIn’s valuation was

$253 in September of 2013; in almost two years, it had declined and rose back to

its previous valuation. This is a trend that has occurred since its appearance on

the NYSE. LinkedIn’s growth rate is reflective of the economy’s growth rate,

which has slowed over time. Its cyclical nature is a major weakness of LinkedIn

and will be displayed should the economy go under again.

Another weakness is its user engagement. Out of Facebook, Twitter and

LinkedIn, LinkedIn seems to have the lowest user-to-user engagement levels

(Fool 2014). For the social networking industry, this is a huge red flag; social

networking is based on users engaging each other. Advertising is major revenue

source for social networks but platforms with low engagement are useless to

advertisers. There’s no value in advertising on a platform where users are

unresponsive. If LinkedIn cannot find a mean to incentivize user-to-user

engagement more, then it will be missing out on large revenue gains.

This leads me to my next point of LinkedIn’s allowing meaningless

connections to develop. Like any social networking, the networking aspect is

what primarily creates value for users. LinkedIn’s user engagement is around 13

percent daily (Pew Research Center 2015), this metric implicates that LinkedIn’s

value in its Talent Solutions is inflated because networking features are not as

effective as claimed. The issue is: LinkedIn makes it too simple to connect with

others. Updates have made it possible to connect with one-click, allowing users

to send requests in large quantities to people they don’t know; ultimately letting


66

more unqualified users spam talent acquisitionists (recruiters, hiring managers,

etc.) with no penalty.

From these weaknesses, it seems that it is time for LinkedIn to alter to its

platform to accommodate for its low engagement levels. Revenue is at risk of

slowing in growth at the expense of another recession, and its Talent Solutions

are at risk of losing subscribers.

Opportunities LinkedIn, in comparison to its competitors, has the best positioning to

seize the opportunities to come within education and health sectors on account of

the growing technological influences in both. LinkedIn is already the world’s

largest professional network; chances are, the Internet will continue to expand

and global connectivity will grow. This opens a window for a platform like

LinkedIn to utilize the growing popularity in online education and the benefits of

healthcare professionals communicating across borders to improve health in

lesser-developed countries. LinkedIn can serve as a medium for both industries

to conduct their practices. Online courses could be taught on the platform and

healthcare professionals in developing nations could access shared content and

have discussions on the matter, possibly creating new solutions. Innovation

moves fasters with more action from people working together.


67

Note: LinkedIn purchased Lynda.com in April of 2015, validating the notion of

opportunity being present in the educational sector.

Recommendations

Internal Recently, LinkedIn has become a publishing platform for content creation;

allowing influencers, thought leaders, and regular users to publish their ideas and

interpretations as a journalist would for the New York Times for example. This

plan was developed with the intentions of drawing more traffic to LinkedIn and

improving user engagement (Techcrunch 2015). The decision to go forth with the

plan could not have occurred any sooner; content sharing has become extremely

popular and rates of sharing are continuing to increase periodically.

As of late, there have been talks of streaming taking over TV, digital

downloads and more; hence why companies like Apple and Amazon have taken

steps to place themselves into the competitive environment of streaming.

Snapchat, an app that allows users to display pictures or stream recorded video

clips for 10 seconds before disappearing, launched its Snapchat Live Story

feature in the past year. It collects “snaps” from people at the same event and


68

compiles them into one continuous live stream for users to view. A recent

Snapchat Live Story at a Las Vegas tech show raked in over 27 million views

(Business Insider 2015). More so, there are implications that Snapchat is closing

in on Twitter’s monthly user numbers (Business Insider 2015). With this in mind,

it seems that streaming will be a feature that social networks could generate

significant revenue from.

LinkedIn could benefit from the value in live streaming, especially as a

publishing platform; regular users have stronger voices now. Twitter saw the

benefits in streaming, leading it to acquire Periscope for $100 million, which is an

app that allows users to live stream whatever they please, and the stream can be

replayed after initial viewing (Business Journals 2015). Its competitor is Meerkat,

which has the same function except the replay feature. Meerkat has grown to

300,000+ users in one month (AdWeek 2015), supporting Twitter’s reasoning for

acquiring Periscope (Periscope is still in its beta stage so no user numbers are

available). Industry influencers are already using Meerkat to stream conferences,

talks and more to their networks. With live streaming; LinkedIn can take

advantage of the new trend for sharing content and connecting people.

News and events are shared on LinkedIn on a regular basis; people post

their publications in hopes of becoming thought leaders and to raise points of

discussions. The ability to live stream the content would be an extremely useful

way for LinkedIn to stay relevant and engage users; they could feel more

engaged by experiencing an event without having to physically be there.


69

Television would falter as an attractive platform for industry related news, when a

smartphone can allow it user to see the media live from varying perspectives.

The power of LinkedIn lies in its ability to connect professionals and have them

engage with one another to create new opportunities; as of right now, the

engagement portion is lacking. If LinkedIn were to mobilize and modernize its

content creation features, engagement levels would increase. Live streaming is

modern and engaging, the successes of Snapchat and Meerkat, along with

Twitter’s acquisition of Periscope display that trend. Snapchat also has its

Discover feature that streams news from various media outlets like CNN, ESPN,

and People Magazine. LinkedIn could take a similar approach and allow

professionals to stream their own media to others. Maybe partnerships with

media outlets such as Entrepreneur, Forbes, Business Insider, etc. would be

beneficial as well. People have a voice, and they want to project it in the most

engaging way possible. With visual content on the rise, outlets that allow users to

produce it are seeing major growth. Streaming is more than reasonable feature

for LinkedIn to adopt.

Based on Twitter’s valuation of Periscope at $100 million, it seems that the

cost for LinkedIn to acquire the same technology would be around that figure.

Even so, the benefit outweighs the cost. Higher user engagement levels means

more effective networking for professionals, which improve the value of the

Talent Solutions. More user engagement increases the value of LinkedIn’s ads

feature as a part of its Marketing Solutions as well. Advertisements are more


70

valuable in areas of high user-activity. LinkedIn has 347 million total users, with

45,110,000 users engaging daily (based on previous 13 percent/day) spending

about nine minutes browsing. Meerkat’s CEO claims that 20 percent of its

100,000 users (as of March 15, 2015) spend at least two hours on viewing

content daily. So the total time spent on Meerkat by a single user daily is equal

to the total daily time of 13 LinkedIn users. LinkedIn could significantly improve its

daily total hours logged by its members with the implementation of streaming

technology, which improves engagement levels and creates more value for those

seeking Marketing and Talent Solutions while establishing its value as a media

outlet as well.

External When analyzing a firm’s financial performance to determine if a stock is

worth purchasing, the ratios that are selected for analysis should depend on the

investors’ needs. Stockholders are primarily concerned with a firm’s financial

performance and it’s ability to generate earnings; to assess this, the ratios for

analysis should be: profit margin, return on assets, return on equity and debt

ratio. As a whole, they display LinkedIn’s ability to generate earnings from its

operations.

On the positive side LinkedIn’s revenues have been increasing yearly in

impressive increments, ending 2014 with $2.2 billion. As a whole, the global

employment and recruiting industry generated around $22 billion in revenue in


71

2014 (Statista 2015); LinkedIn being the largest professional network has a

significant room for growth in the market. Its debt ratio has been declining,

indicating its improving ability to finance its operations internally, making it a less

risky investment. The debt ratio has decreased from 0.84 to 0.21 in a three-year

span.

On the negative side, its profit margins, return on equity and return on

assets have been declining each year. As of 2013, the profit margin was

recorded at 1.7 percent, over a 4 percent decrease since 2010. The return on

equity decreased from 42 percent to 1 percent. The return on equity decreased

from 6.5 percent to 0.8 percent. Based on these numbers, LinkedIn has become

less efficient in generating revenues for investors; efficiency has decreased in

ability to use assets and investors’ capital to generate earnings.

Based on the opportunities in the industry for the future and LinkedIn’s

numbers, purchasing shares in the company is recommended for the risk-averse

investor. Although, its efficiency in generating earnings has declined, this is

possibly a result of LinkedIn’s reliance on financing its operations through debt

early in its IPO status. For the social networking industry LinkedIn’s debt-to-

equity ratio was relatively high, 0.84 in 2010; or every dollar of equity, there was

84 cents in debt. It seems that LinkedIn has spent the years after that, financing

its growth and paying down debt; so the declines appear as a result of inflation

from the debt financing. This also implies the reasoning behind undistributed

dividends. As it has paid down debts, it has still remained profitable and


72

displayed impressive growth in its revenue. The company has showed its ability

to maintain on its internal capital, and improvement in the ability to generate

earnings for investors can be expected in the years to come.

Appendix: Industry Benchmark


73

Revenue (Millions USD) Company 2010 2010 Weight 2011 2011 Weight 2012 2012 Weight 2013 2013 Weight LinkedIn 243 0.889336016 522 0.825975271 972 0.751207576 1.529 0.002266827 Facebook 1.970 0.007206878 3.710 0.005868313 5.089 0.00393177 7.872 0.011674493 Twitter 28 0.103457106 106 0.168156417 317 0.244860654 665 0.986058679 Total 273.35 1 632.209 1 1294.328 1 674.2905 1

Gross Profit Margin % Company 2010 2010 Weight 2011 2011 Weight 2012 2012 Weight 2013 2013 Weight LinkedIn 2.77% 32.10599336 3.19% 25.89264172 3.7% 20.30290747 3.5% 0.064766489 Facebook 77% 0.009359581 77% 0.007641032 73% 0.005385986 75% 0.015565991 Twitter -‐52% -‐0.198955974 42% 0.400372421 59% 0.415018057 60% 1.643431132 Total 31.91639697 26.30065517 20.72331151 1.723763613

Operating Margin Company 2010 2010 Weight 2011 2011 Weight 2012 2012 Weight 2013 2013 Weight LinkedIn 16% 5.558350101 13% 6.35365593 14% 5.365768403 12% 0.018890226 Facebook 51% 0.014131133 45% 0.013040695 10% 0.0393177 35% 0.033451271 Twitter -‐238% -‐0.043469372 120% 0.140130347 24% 1.020252723 96% 1.027144458 Total 5.529011861 6.506826971 6.425338826 1.079485954

Net Profit Margin % Company 2010 2010 Weight 2011 2011 Weight 2012 2012 Weight 2013 2013 Weight LinkedIn 6% 14.82226693 4.9% 16.85663818 2.2% 34.14579893 1.7% 0.133342772 Facebook 19% 0.037930935 18% 0.032601736 0.6% 0.655295 19% 0.061444702 Twitter -‐238% -‐0.043469372 -‐120% -‐0.140130347 -‐25% -‐0.979442614 -‐97% -‐1.01655534 Total 14.8167285 16.74910957 33.82165131 -‐0.821767865

ROE Company 2010 2010 Weight 2011 2011 Weight 2012 2012 Weight 2013 2013 Weight LinkedIn 42% 2.117466705 2% 41.29876354 2% 37.56037882 1% 0.226682713 Facebook 17% 0.042393398 5% 0.117366251 3% 0.145621111 10% 0.121609306 Twitter N/A N/A -‐17% -‐0.989155392 -‐3% -‐8.162021785 -‐19% -‐5.189782523 Total 2.159860103 40.4269744 29.54397815 -‐4.841490504

ROA Company 2010 2010 Weight 2011 2011 Weight 2012 2012 Weight 2013 2013 Weight LinkedIn 6.5% 13.68209256 1.4% 60.7334758 1.6% 48.15433182 0.8% 0.286940143 Facebook 12% 0.060057314 5% 0.122256511 0.2% 1.965885 8% 0.145931168 Twitter N/A N/A -‐18% -‐0.934202315 -‐29% -‐0.844347081 -‐22% -‐4.482084907 Total 13.74214987 59.92152999 49.27586974 -‐4.049213596


74

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