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LinkedIn Q2 2014 Quarterly Results Transcript                      LinkedIn Participants: Matt Sonefeldt – Head of Investor Education, LinkedIn Jeff Weiner – Chief Executive Officer, LinkedIn Steve Sordello – Chief Financial Officer, LinkedIn    Other Participants: Mark S. Mahaney - Analyst, RBC Capital Markets LLC Heath P. Terry – Analyst, Goldman Sachs & Co Eric J. Sheridan – Analyst, UBS Securities LLC Gene E. Munster – Analyst, Piper Jaffary & Co Mark A. May – Analyst Citigroup Global Markets Inc Robert S. Peck – Analyst SunTrust Robinson Humphrey Kerry Rice – Analyst, Needham & Co LLC Brian J Pitz – Analyst, Jefferies LLC Andrew McNellis – Analyst, Evercore Partners Douglas T. Anmuth – Analyst, JPMorgan Securities LLC Aaron M. Kessler – Analyst, Raymond James & Associates LLC Dan Salmon – Analyst, BMO Capital Market

                   

 

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LinkedIn Q2 2014 Quarterly Results Transcript  

Mountain View, Calif. – July 31, 2014 Matt Sonefeldt, Investor Education, LinkedIn Good afternoon. Welcome to LinkedIn’s second quarter of 2014 earnings call. Joining me today to discuss our results are CEO Jeff Weiner, and CFO Steve Sordello. Before we begin, I would like to remind you that during the course of this conference call, management will make forward-looking statements which are subject to various risks and uncertainties. These include statements relating to expected member growth and engagement, our product offerings including mobile and our product deployment process, the results of our R&D efforts, revenue including revenue growth rates of our three product lines Talent Solutions, Marketing Solutions, and Premium Subscriptions, adjusted EBITDA, depreciation and amortization, stock based compensation, earnings per share, share dilution, taxes, the product mix between online and field sales, and other drivers of our business. Actual results may differ materially from the results predicted and reported results should not be considered as an indication of future performance. A discussion of risks and uncertainties related to our business is contained in our filings with the Securities and Exchange Commission, in particular the section entitled “Risk Factors” in our quarterly and annual reports, and we refer you to these filings. Also, I would like to remind you that during the course of this conference call, we may discuss some non-GAAP measures in talking about the company’s performance. Reconciliations to the most directly comparable GAAP financial measures are provided in the tables in our earnings release. This conference call is also being broadcast on the Internet and is available through the investor relations section of the LinkedIn website. Lastly, this quarter on our investor relations website we have included supplemental slides discussing our Talent Solutions market opportunity and go-to-market. We have also included in our selected company metrics and financials table history of our internally measured member metrics, the recasted history of Talent & Marketing Solutions revenue, and a field vs. online revenue breakout for Talent Solutions. With that, I will turn the call over to our CEO Jeff Weiner. Jeff Weiner, Chief Executive Officer, LinkedIn Thank you, Matt, and welcome to today’s conference call. I’ll start by summarizing the operating results for the second quarter of 2014, and I’ll recap some of the key milestones that highlight the success of our strategy. I’ll then turn it over to Steve for a more detailed look at the numbers and outlook. LinkedIn delivered strong financial results in the second quarter while maintaining continued investment in our member and customer offerings. We made significant progress against several key strategic priorities including increasing the scale of job opportunities on LinkedIn; expanding our professional publishing platform; adding to our growing portfolio of mobile apps; and

 

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successfully positioning our Marketing Solutions business for the future through the growth of Sponsored Updates. We are also excited about today’s launch of the all new Sales Navigator and last week’s acquisition of Bizo. Both underscore the opportunities we have to continue building a scalable, diverse business that adds value for our members and customers based on the critical mass of the LinkedIn network. For Q2, overall revenues grew 47 percent to $534 million. We delivered adjusted EBITDA of $145 million, and non-GAAP EPS of $0.51 cents. We continue to see healthy member engagement dynamics across LinkedIn, especially in light of the challenging year over year comparison that we discussed last quarter. During Q2, cumulative members grew 32 percent to 313 million, internally-measured unique visiting members to LinkedIn grew 13 percent to an average of 84 million per month, and internal member pageviews grew 22 percent to 25 billion for the quarter, well ahead of unique member growth. Organic engagement is one area of particular strength, driven by our mobile and content efforts. Homepage traffic, as measured by unique visiting members, continues to outpace overall site traffic growth, increasing approximately 40 percent faster over the past year. Mobile also continues to drive a growing share of engagement, growing more than three times as fast as overall uniques. Mobile now accounts for 45 percent of total traffic to LinkedIn. The value we deliver to members remains consistent -- we enable professionals to build and manage their identities; create and leverage their professional networks; and gain the knowledge they need to be more successful in their careers, across multiple screens and devices. We want to highlight a few of our efforts since the start of the year that deliver across these value propositions. Within identity, in June, we revamped the design of profiles on LinkedIn’s desktop site to make them more visually distinctive and personalized. And earlier this week we launched a major redesign of the LinkedIn profile. The new profile, first introduced on our flagship mobile app, helps members define their professional identities more quickly and effectively. It adds important contextual information, including Recent Activity such as updates and long-form posts, and makes it easier for members to ensure their profiles are up-to-date. Changes to LinkedIn Profiles help members better showcase their professional brands and get more value out of their LinkedIn networks. And now they can be found more effectively through Galene, our new search architecture rolled out in June. Pageviews to content driven by search have since accelerated. Specific to network, earlier this month we unveiled Connected on iOS, the newest mobile app in our growing multi app portfolio. Connected enables LinkedIn members to strengthen their professional relationships by delivering timely updates and opportunities to engage with the people in their networks. Connected has quickly become a top app in the App store business category. Early data shows that active users of the app are using it on average more than four days per week, suggesting that Connected has already become an integral part of each work day. We also continue to grow the network through international expansion; 67 percent of LinkedIn members come from outside the United States. After launching our Simplified Chinese site in February, China has now become our fastest growing major market for new members over the past several months.

 

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On knowledge, we continue to see LinkedIn members embrace the idea of creating and consuming long-form content through the publishing platform. Thus far, we’ve ramped the functionality to over 15 million members, on our way to opening up publishing to every member on LinkedIn. We’re encouraged by the early trends, recently surpassing 30,000 weekly long-form posts. Since launching in February, traffic to publisher and Influencer posts is up more than 100 percent. Finally, two weeks ago, we announced the acquisition of Newsle to accelerate our ability to deliver relevant content to our members. Newsle’s technology finds blogs and articles that mention people who may be professionally relevant to you and notifies you seconds after publication. While we are currently maintaining Newsle’s standalone site and app, we are already beginning to integrate the functionality into our existing offerings, including the new Sales Navigator launched today. Creating value for our members enables us to deliver useful offerings to customers of our Talent Solutions, Marketing Solutions, and Premium Subscriptions products. These product lines transform the way our customers Hire, Market, and Sell on a global basis. In Q2, Talent Solutions grew 49 percent to $322 million; Marketing Solutions was up 44 percent to $106 million; and Premium Subscriptions increased 44 percent to $105 million. For Talent Solutions, our goal is to power the world’s hires. In order to achieve this goal, we are investing in our existing portfolio of recruiting products, as well as increasing our focus on members actively looking for work opportunities. In May, we began testing “limited listings”, an initiative that dramatically grows the number of job opportunities made available on LinkedIn for active job searchers. There are now more than one million jobs on LinkedIn, compared to only 300,000+ jobs just a few months ago. We expect this number to continue to ramp through Q3 and beyond. In addition, in June we launched the LinkedIn Job Search App for iPhone. The app addresses the growing level of mobile job interaction on LinkedIn, which at the end of Q2 accounted for more than 40 percent of all job views versus approximately 25 percent a year ago. Engaged users of the new app are using it to view an average of 15 jobs per week. In Marketing Solutions, Sponsored Updates drove revenue growth in Q2, as we continued the strategic shift towards content marketing. Just last week, we launched Direct Sponsored Content, enabling marketers to test and optimize targeted content campaigns not specifically limited to company pages. With last week’s acquisition, we are also excited to welcome Bizo to LinkedIn. Integration of Bizo will increase the speed with which we can leverage our own content marketing products to create a comprehensive B2B platform and help customers build stronger relationships with professionals. Within Subscriptions, today we are pleased to announce the launch of the all-new Sales Navigator. This new SaaS product delivers a customized view into LinkedIn to better connect sales professionals with the right buyers by leveraging key insights and connections across the LinkedIn network. Our research shows that social selling transforms the sales process -- buyers are over five times more likely to engage with sales professionals when introduced through a common connection versus a cold call. Just as the launch of our flagship Recruiter product transformed the way talent professionals recruit, we expect Sales Navigator will similarly transform the effectiveness of sales professionals. Finally, I want to extend a special thanks to our employees. During our most recent InDay in July, thousands of them contributed to more than 40 projects dedicated to helping underserved audiences create economic opportunity for themselves and their communities.

 

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And now, I’ll turn it over to Steve for a deeper dive into our operating metrics and financials. Steve Sordello, Chief Financial Officer, LinkedIn Thanks Jeff, Today I will discuss growth rates on a year-over-year basis unless indicated otherwise, and non-GAAP financial measures exclude items such as stock-based compensation expenses, amortization of intangibles, and the tax impacts of these adjustments. We had a strong quarter as we continue to leverage the scale of the LinkedIn network. Each of our product lines performed well - Talent Solutions continued to grow against the larger hiring market opportunity, while investments in content marketing and sales solutions are beginning to take hold. We also remain focused on aggressively investing in the LinkedIn member platform. Creating increased value for members through a richer experience further expands our long-term opportunity. To that end, organic engagement is on the rise, mobile is contributing greater levels of traffic, and we have seen substantial page view per unique member growth over the past two years dating back to our inversion initiatives. Last year’s strength translated into accelerated member growth and engagement. As we mentioned last quarter, this strength created difficult comparisons for member metrics in 2014, particularly in the second and third quarters. Briefly reviewing what happened last year illustrates these trends:

• In early 2013, we improved new member onboarding to the site by better leveraging key products including People You May Know, the homepage, and address book invitations.

• Starting in the second quarter of last year, these initiatives led to a dramatic pull forward of new member growth. As a result, monthly member signups accelerated between April and September; from single digits to at one point nearly 70 percent year on year growth. This also drove accelerated unique and page-view growth through the middle of 2013.

• Just recently, new member additions on an absolute basis returned to a more normalized level compared to our historical trend. We expect stable engagement trends throughout the rest of 2014.

For the remainder of the year, we are focused on continued investment in core experiences like the homepage and the multi-app strategy. Longer-term, we look forward to the impact of newer member initiatives like the publishing platform, jobs, and deeper international engagement in new geographies like China. With regard to monetization, all three product lines experienced strong growth, leading to $534 million in revenue, an increase of 47 percent year-over-year. Talent Solutions continued to perform well as our largest and fastest growing revenue line. Revenue increased 49 percent year-over-year to $322 million, representing 60 percent of total sales. Field sales, representing 75 percent of Talent Solutions revenue, showed balanced strength between new customer acquisition and relationship management.

• Over the past three years, our land & expand playbook has consistently driven growth -- recent 3-year US cohort data highlights that enterprise customers increased spend by 5x, in some cases much more. This has led to consistent revenue growth per customer even as we’ve added many smaller accounts over time.

 

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• Across our base of more than 28,000 field sales customers, we’ve had continued success deepening relationships with accounts as illustrated by improvement in the net ratio (which measures year-over-year growth of existing customer spend net of churn). This increase in net ratio is a better than expected outcome given the increasing scale of the business.

• Our hunter reps also performed well, and we plan to add more hunters and relationship managers in the 2nd half than initially planned as we see our opportunity expanding into next year.

In addition, the online channel showed strength, especially job seeker subscriptions, now one of the fastest growing products within Talent Solutions. More broadly, our opportunity within the global hiring market continues to expand as our member base grows, as we increase hiring activity on LinkedIn, and as we grow our existing business. Marketing Solutions grew 44 percent to $106 million, representing 20 percent of total sales. During the quarter, we benefitted from strength in Sponsored Updates and traditional display. This is compared to the relatively muted growth in the second quarter of last year, when we transitioned away from one-time deals to a more scalable content marketing strategy. Sponsored Updates maintained strong momentum through the second quarter:

• Where it represented 28 percent of Marketing Solutions revenue, up from 23 percent in Q1, 15 percent in Q4, and 7 percent in Q3.

• The product and sales teams remain focused on driving demand, contributing to a 20 percent increase in effective pricing during the quarter.

• And we expect auction dynamics to further improve over time with the launch of Direct Sponsored Content, API partner growth, and the integration of Bizo’s targeting and ROI tools.

In addition, our display-driven business unexpectedly benefitted from Sponsored Updates traction. Compared with last year, field sales sell-thru improved and the average spend for display customers slightly increased. For the online business, one by-product of field success has been reduced self-serve ad inventory. Finally, we are excited to welcome Bizo and begin investing in creating a broader B2B platform, building on the current success of Sponsored Updates. Premium Subscriptions grew 44 percent to $105 million, contributing 20 percent of revenue. General Subscriptions, which still represents the majority of subs revenues, had a good quarter, with stable churn and a nice uptick in new subscriber ARPU. Moreover, we are excited to launch the new Sales Navigator.

• Today, field sales generates roughly one-third of Sales Navigator revenue, but over time, we expect Sales Solutions to be more field driven as the business scales, much like Talent Solutions,

• Over the past year, we’ve invested in building a standalone salesforce, which today is split roughly 60 percent US vs. 40 percent international.

• We will also sell the same flagship Sales Navigator product on a self-serve basis for small business and individual sales professionals wanting to leverage Social Selling.

In terms of geography, we continue to become more global across the business. International now represents 40 percent of overall revenue versus 38 percent last year. By channel, field sales

 

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contributed 60 percent of revenue versus 58 percent last year, with Marketing Solutions in particular driving strong field sales performance. Moving to the non-GAAP financials, revenue outperformance resulted in Adjusted EBITDA of $145 million, a 27 percent margin compared to $89 million and a 24 percent margin last year. Depreciation and Amortization totaled $56 million while stock compensation was $75 million. On taxes, GAAP expense was $16 million, while non-GAAP expense was $34 million, reflecting the static 35 percent non-GAAP tax rate we expect throughout 2014. GAAP net loss was $1 million, resulting in a one-cent loss per share, compared last year to a gain of $4 million and earnings of three cents per share. Non-GAAP net income was $63 million, resulting in earnings of 51 cents per share, compared with $44 million and 38 cents last year. The balance sheet remains strong with $2.4 billion of net cash and marketable securities. Operating and free cash flow were $128 million and $32 million during the quarter, both slightly higher than last year. I will end the call with guidance for the third quarter and an updated outlook for 2014. For revenue:

• We expect Q3 to range between $543 and $547 million, 39 percent growth at the midpoint.

• For the full year, we are raising our outlook by $75 million, to range between $2.14 and $2.15 billion, a 40 percent annual growth rate compared to the 35 percent reflected in prior guidance.

Revenue guidance incorporates: stable and consistent Talent Solutions performance; more normalized Marketing Solutions comps versus last year; and transitioning to the new Sales Navigator product which due to its SaaS nature will build gradually over time. For Adjusted EBITDA:

• We expect Q3 to range between $134 and $136 million, a 25 percent margin at the midpoint.

• For the full year, we are raising our outlook to between $545 and $550 million from approximately $505 to $510 million, now a 26 percent margin at the midpoint.

Adjusted EBITDA guidance incorporates continued heavy investment in the 2nd half, especially in R&D and sales, to support our 2014 strategic initiatives. Guidance also includes the following acquisition impacts:

• Specific to Bizo, the longer-term strategy is to leverage Bizo’s products and technology to create a larger B2B focused business.

• We plan to maintain a portion of their existing business specific to multi-channel advertising. For revenue, we expect Bizo to add approximately $3 million in Q3 and $6 million in Q4.

• For Adjusted EBITDA, we expect Bizo to have a negative $2 million impact in each of Q3 and Q4. This is in addition to the $8-10 million full year Adjusted EBITDA impact from Bright.

Lastly, we expect Non-GAAP EPS of approximately 44 cents for Q3 and $1.80 for the full year. Additional guidance inputs include:

• Depreciation of $50 million for Q3 and $202 million for the full year. • Amortization of $8 million for Q3 and $28 million for the full year.

 

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• Stock based compensation of $80 million for Q3 and $305 million for the full year. • And fully diluted weighted shares of approximately 126 million for Q3 and the full year.

In closing, we are pleased with the strong results across the business. We continue to make long-term investments to drive both deeper member engagement as well as broaden our business through initiatives like Sales Navigator, B2B marketing, and greater scale around hiring. As we focus on the second half, we will maintain this long-term approach in scaling both our member and customer platforms. Thank you for your time and we will now take questions.

 

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Mark S. Mahaney - Analyst, RBC Capital Markets LLC Thanks. Steve, you talked about kind of a switch in the outlook back towards more Hunter adds in terms of the sales force. You mentioned that there was some conditions that changed that made you kind of skew back that way. Could you describe what those were? That seems like something of a notable change from last quarter when the emphasis was more on the Farmer side. Thank you. Steve J. Sordello - Chief Financial Officer, LinkedIn I would say it's a slight change in terms of mix. We're still adding both relationship managers and Hunters, so it's still fairly balanced. But I think it is modestly shifting more towards Hunters, particularly internationally. One of the things as we continue to grow this business, both in terms of new customer additions as well as kind of going deeper within accounts, is we continue to see the opportunity is in some cases growing larger. So we're going to take the opportunity to pull forward some of the headcount to go after that opportunity for next year. Mark S. Mahaney - Analyst, RBC Capital Markets LLC Thank you, Steve. Heath P. Terry – Analyst, Goldman Sachs & Co Couple of questions. Jeff, Bizo has been described by some as sort of being your MoPub or having the potential to become your MoPub or your FPX. Given the success of both Twitter and Facebook have seen in that end of the market, I'm sort of curious how you see those comparisons, whether or not they're sort of fair. And then Steve, it was Q4 of last year where you really started to significantly ramp the sales headcount associated with Sales Navigator. You've said in the past that it's usually sort of six to nine months before salespeople become really productive at LinkedIn. Wondering how much of that is – if that's accurate and applies to Sales Navigator in general, how much of that is sort of factored into the guidance for Q3 and Sales Navigator in particular? Jeff Weiner – Chief Executive Officer, LinkedIn Thanks, Heath. With regard to Bizo, it's going to anchor our B2B marketing solutions platform, and we're excited about that as a standalone effort, and we're even more excited about that when you think about the nexus of B2B and the success that we've had thus far to date with Sponsored Content. I would characterize it less as an ad network play, although of course our customers are now going to be able to target the right prospect, engage that prospect, and nurture that prospect through multiple channels on LinkedIn and off. Steve J. Sordello - Chief Financial Officer, LinkedIn And I'll take the sales solution question. So today, the current business mix is roughly two-thirds online, one-third field. We expect that to migrate more towards field over time. I would say the headcount ramp which we grew throughout the year to 130 last quarter stands at about 150 today. And it's a little too early to tell for the new product, what will be the sales cycle. I could say for the old product I think throughout the year we saw improving performance. We saw churn improve. Our net ratio for that business remains very healthy. It's actually similar to

 

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rates to what Recruiter was in it’s early days. But this is a new product in a lot of ways, and along with that there is customer education with it. It has a number of different value props that I think are pretty compelling and we're excited about it. Against that backdrop, it's also rateable business, and so this is something that builds over time, very similar to our Recruiter business within talent solutions. So the guidance in the back half of the year, there really isn't a material increase in terms of the revenue, and so we'll monitor other metrics to kind of see the pace there. But we're very excited about it. Heath P. Terry – Analyst, Goldman Sachs & Co Great. Thank you both. Eric J. Sheridan – Analyst, UBS Securities LLC Yes, hi. Thanks for taking the question. I guess with the customer count within talent solutions, was curious if there were any dynamics in that reported number that could be tied back to any reclassification of customers in the quarter. And then second, on the Direct Sponsored Content product, want to know if we could get an update about sort of what you're seeing there from an early read perspective. Thanks. Steve J. Sordello - Chief Financial Officer, LinkedIn Sure. On the customer count, across the board we had a strong quarter I mentioned both in terms of new and existing relationships. On the new side we added over 2,200 accounts. As we spoke about before, there is from time to time some consolidation that happens there within companies as we grow and attach different departments. Nothing material there, similar to last quarter's trends. So a nice uptick in terms of new customers. I will relate, just like last quarter, I think in any given quarter most of the business is driven by the existing customer base, given that we're over 28,000 customers, and the metrics behind that continue to be very strong in terms of the add-on and renewals and churn, maintaining healthy levels. So it's kind of a combination between these two elements that the business is sustaining in terms of it’s momentum. Jeff Weiner – Chief Executive Officer, LinkedIn Hi, Eric. With regard to Direct Sponsored Content and taking a read on that newly introduced service, it's a little too early to project anything longer term. But thus far we're very pleased with the results, and we've seen deeper engagement, increases in spend, increases in relevancy for the content that is now being optimized through Direct Sponsored Content, and not necessarily limiting our customers to the content that is publicly visible through their company profile. So we're encouraged by what we've seen thus far but still a little too early to make longer-term projections. Eric J. Sheridan – Analyst, UBS Securities LLC Great, thanks a lot. Gene E. Munster – Analyst, Piper Jaffary & Co Good afternoon and congratulations. Steve, you mentioned Sales Navigator that it's a high value proposition. Can you give a little insight in terms of helping us understand a little bit more about

 

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the product, what it competes with and why are you so excited about it? Jeff Weiner – Chief Executive Officer, LinkedIn Hey, Gene, it's Jeff. I'll take that one. With regard to Sales Navigator, we think this really helps usher in, in a meaningful way this era of social selling, and we've seen internally and through early customers of our existing Sales Navigator product, those customers that participated in our charter program, we've seen very significant lifts in sales effectiveness and efficacy as a result of converting what normally would have been a cold call through your relationships, you can convert that cold call into a warm prospect. And then going beyond identifying the ideal prospect and figuring out the best way to contact that person is also the way in which you can engage with them by virtue of seeing what content they've shared or a post that they've written. You get a better sense of the way they're thinking and the way they're approaching their specific market. So through those three value propositions, identifying the right prospect, connecting with the right prospect, and engaging with the right prospect, we're very encouraged and excited about the launch. Gene E. Munster – Analyst, Piper Jaffary & Co Just a quick follow-up. Can you talk a little about when we should start to expect more meaningful revenue from it? Steve J. Sordello - Chief Financial Officer, LinkedIn This is Steve. As I mentioned, this is a – I think there's two components. On is, there is somewhat of a transition and I mentioned this is in many ways a new product which has education associated with it in terms of the customer adoption cycle. But more importantly, it's a rateable product. And so it builds over time. There's a backlog that builds as the business – as the customer base builds, and just like talent solutions has over the last several years. Our approach will likely be very similar in terms of a land and expand type of go-to-market approach. But it is important at least for this year, the rateable recognition of revenue impact on the top line. Gene E. Munster – Analyst, Piper Jaffary & Co Do you think 2015 will be measurable revenue from it? Steve J. Sordello - Chief Financial Officer, LinkedIn Yes, I think it will continue to scale. Ultimately, we've talked about this in the past, sales solutions being our third line of business, and I think going into next year is what we're currently thinking as kind of a certain scale where that may happen. Gene E. Munster – Analyst, Piper Jaffary & Co Great, thank you. Mark A. May – Analyst Citigroup Global Markets, Inc. Thanks for taking my questions. Just a follow-on with Sales Navigator. Can you remind me of the pricing and pricing strategy? And then also what types of salespeople by industry vertical are your field sales team targeting?

 

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And then secondly on advertising, I think despite the new UV and page view metrics that you're reporting which I think are both a bit smaller than what the previous numbers were, but they're also showing a deceleration to your point around the tough comps year on year. You're able to post accelerating marketing solutions revenue growth in the quarter. Can you just talk a little bit more about why that was possible, despite kind of the usage metrics that we're looking at, and how sustainable that is? Thanks. Steve J. Sordello - Chief Financial Officer, LinkedIn On the pricing for Sales Navigator, so on the subscription product it's been averaging roughly $700 per seat, varies depending on a field customer versus an online customer. The price point for the new Sales Navigator is about $1,200, so there is an inherent price increase. In terms of the customer set, very similar to our Recruiter customer set. There's a broad-based – I'd say it's actually broader based than where Recruiter was in it’s early days in terms of the industries, technology, financial, healthcare, it's pretty broad based in terms of the market opportunity. In terms of the marketing solutions revenue related to engagement, one of the drivers of the growth from marketing solutions this quarter relative to Q2 last year was the fact that last year the comp was relatively muted. We went into that period where we were transitioning to Sponsored Content. We were moving away from customized, one-time deals. And so the overlap relative comp, the 44 percent growth is partly driven by that. That being said, the performance is very strong in terms of Sponsored Updates, continue to grow as a percentage of our business, the display side where we initially expected some form of cannibalization as we focused more on Sponsored Content, it actually has upticked a little. We've seen nice performance in terms of pricing on both those fronts, and sell-through rates from the field in particular. So there's some varying factors in terms of the impact on growth. As we look forward to Q3, we expect it to more normalize in terms of the year-on-year comps, relative to Q2 being our low point last year. And then on the engagement side, again, the comps there difficult in Q2. We expect those from a growth perspective to stabilize in the back half of this year for engagement metrics. Mark A. May – Analyst Citigroup Global Markets, Inc. Thanks, Steve. Robert S. Peck – Analyst SunTrust Robinson Humphrey Was wondering if on marketing solutions you could talk about a couple things. One, could you give us a little more color around the $18 million reclassification and what exactly was going on there. And then could you talk a little about the availability of inventory for some of your preferred marketing partners? Do they have full access to inventory right now, and can you give us some examples of what we're seeing as far as CPMs, pricing, and ROI? Thanks. Steve J. Sordello - Chief Financial Officer, LinkedIn Sure. I'll take the first one. So we had a portion of CPM-based recruitment media, that's an ad product that we've historically classified in marketing solutions. As that business has grown, it really better aligns with talent solutions customers. It's increasingly a larger part of how they recruit. So we felt it made more sense to reclassify it there from just a business reporting perspective. So in the documents on the Investor Relations Web site it's all been reclassified so

 

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it's apples to apples. But it just felt like it fit better under the business line. Jeff Weiner – Chief Executive Officer, LinkedIn It's Jeff. With regard to inventory, there's plenty of inventory head room on the traditional display front. Though that said, we have seen a nice increase in sell-through rate, which is in part a byproduct of a positive halo effect from the demand for Sponsored Content. So that's an encouraging trend. There's also good head room with regard to Sponsored Content inventory, and that also has the added benefit of being a marketplace-driven business. So to the second part of your question, ECPMs with regard to Sponsored Content is moving in a positive way and we're pleased with the results there thus far. Kerry Rice – Analyst, Needham & Co LLC Couple questions. Maybe the first one on the ARPU in talent solutions, keeps growing nicely. I was wondering if you could talk about are new or existing customers coming in and purchasing more seats, or maybe the initial purchase have more seats or job slots there? And then the second question is you mentioned that you're hiring more Hunters and particularly around international markets. Can you talk a little bit more about what you're doing there, initiatives to grow the international revenue? And maybe you can loop in what you guys – what the progress is in China. Steve J. Sordello - Chief Financial Officer, LinkedIn Sure. So the ARPU is a factor of the two components. I would say on the new bookings side, yes, I think we've had more success upfront selling bigger deals which has helped a broader portfolio of products than in the past, and that's been a consistent theme. So that helps the ARPU, particularly balancing against adding more smaller accounts. I think also on the existing business side, we continue to sell more deeply. This aligns with the land and expand approach, the fact that our customer base over the last three years has increased spend by about 5 times, in some cases much more. And that's helped offsetting the kind of buildup of smaller businesses and the impact on – the negative impact on ARPU. So very pleased with the ability to maintain that ARPU. On the international front, we do see – our international revenue within talent solutions is roughly just under 40 percent. That's up from about 35 percent a year ago. So it continues to grow. And I think that as we look at the opportunity, we've expanded our field sales presence. It is an important piece of our growth and part of the opportunity of pulling forward the heads to go after the opportunity. It is in the US as well but weighted more internationally. So that at a high level, we do see a broader opportunity internationally. Jeff Weiner – Chief Executive Officer, LinkedIn With regard to China, priority number-one there was making sure we had a world class team in place and we're making very strong progress along those lines. We're also seeing encouraging results with regard to our growth. China has become the fastest growing major market in terms of new members. We're also seeing healthy trends there in terms of engagement. So we're pleased with the results thus far. There's certainly going to be challenges ahead but we

 

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think we're laying a strong foundation and we're excited about the future. Brian J Pitz – Analyst, Jefferies LLC Thanks for the question. From a high level, you're taking share in a recruiting market that generally is not growing. Can you give us any update on who you're really displacing or where those dollars are coming from? And just quickly, would you give us an update on inventory sellout in Q2 for marketing solutions? I assume it was a total sellout like in previous quarters. Thanks. Steve J. Sordello - Chief Financial Officer, LinkedIn Sure. In terms of the overall opportunity, the way we look at it has not changed significantly. We're roughly a $1 billion LTS business today. The overall opportunity is $27 billion, when you look at the markets that we participate in, exec recruiting, jobs recruiting, media. Actually much larger than that when you consider part time. We believe we're still very early days. I think also in terms of that market, obviously we – our value prop is different than other players in terms of what we can do via passive recruiting in terms of unlocking value in addition to the active recruiting side and the strategy around increasing jobs. We feel like we're still early days both in terms of the broader opportunity, as well as within the opportunity of expanding within our existing accounts. Andrew McNellis – Analyst, Evercore Partners This is Andrew McNellis in for Ken. We're wondering if you could briefly discuss how you think about the search experience on LinkedIn. Seems like there could be a potentially large opportunity for commercial search on the platform, but as things currently stand, users typically run into pay walls for that unrestricted search functionality. But it seems like there could be a lot of professionals on the other side of that that would pay for that user discovery, similarly to how paid search works on larger platforms now. So just wondering if you've ever considered a different approach to how search is monetized on LinkedIn. Jeff Weiner – Chief Executive Officer, LinkedIn Search is really at the core of our flagship Recruiter offering, so to that extent there's already a commercial offering there. It also powers the ecosystem, which the vast majority of our products and services are free. So there's no intention to change that any time in the foreseeable future. If anything, we continue to invest in that free offering and continue to innovate on our search capabilities, going beyond people, which is one of our core applications with regard to professional identity. And making it easier than ever before to search amongst companies and universities and specific content that's been published on LinkedIn. Andrew McNellis – Analyst, Evercore Partners OK. Thanks. Douglas T. Anmuth – Analyst, JPMorgan Securities LLC Thanks for taking the question. Just on Sales Navigator, on the launch here, I know you're optimistic certainly on the value proposition. I think you've talked in the past about how the new version will increase functionality by about 60 percent to 70 percent. Can you just talk in a little bit more detail about some of the differences in the tools and capabilities here versus the original

 

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version? And then secondly, on mobile having good head room in terms of inventory going forward, is there potential to have Sponsored Content beyond the home page on other parts of the app? Thanks. Jeff Weiner – Chief Executive Officer, LinkedIn Thanks, Doug. With regard to the differences between the previous product and version of Sales Navigator and the new one, I think one of the most material differences is going to be the focus on insights and business intelligence about your potential prospects, and who is going to make for the best prospect, the best way to get in touch with that prospect, changes to their jobs, changes to their companies, the kind of information that you can leverage to best engage with that prospect. We mentioned Newsle integration which we're very excited about given how recently that acquisition was completed. So that's a good indication of the direction of that product and we're looking forward to taking that to market. With regard to Sponsored Content beyond the home page on mobile and of course the home page on desktop, yes, there are going to be opportunities to distribute Sponsored Content in alternative products and services. One of the areas we can explore there is the publishing platform, and that's not just going to be LinkedIn post, LinkedIn publisher post, but also environments like SlideShare and some of our new applications that are consistent with our multi-app strategy. Douglas T. Anmuth – Analyst, JPMorgan Securities LLC Thank you. Aaron M. Kessler – Analyst, Raymond James & Associates LLC Good quarter. Just quickly on the monetization of expanded job listings, how do you plan to monetize expanded job listings? And two, do you think there will be any friction kind of with the current job listings? Now that you're much bigger, how are you going to manage the revenues there? Thank you. Jeff Weiner – Chief Executive Officer, LinkedIn I'll start with the first one. With regard to expanded job listings, there is a paid component and a free component. The free component is characterized as limited listings, where our active job seekers are going to be able to see those jobs. There's roughly 1 million jobs available to active job seekers today on LinkedIn. And our paying customers are going to be able to get their jobs in front of both active candidates and passive candidates. So we can get the right job in front of the right member at the right time, leveraging things like matching capabilities, relevancy algorithms, specific e-mail digests, and a number of different ways in which we can connect our members to those jobs. Aaron M. Kessler – Analyst, Raymond James & Associates LLC Great. And just quickly, is this going to expand the jobs also to more non-professional verticals? Jeff Weiner – Chief Executive Officer, LinkedIn I think that would certainly be the case longer term, when you start thinking about the vision for the economic graph. And being able to create economic opportunity for every member of the global workforce, that's 3 billion members of the global workforce, that goes well beyond the

 

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current addressable opportunity for LinkedIn, which is professionals and knowledge workers, and there's roughly 600 million knowledge workers in the world. And similarly, with regard to jobs, we've grown from just north of 300,000 jobs a few months ago to roughly 1 million today, and that number's expected to continue to ramp through the end of this year and beyond. And I think you're going to see the kinds of jobs that we're able to offer is going to mirror our membership over time. Aaron M. Kessler – Analyst, Raymond James & Associates LLC Great, thank you. Dan Salmon – Analyst, BMO Capital Market Hi, guys, good afternoon. Jeff, just a quick follow-up on the new Sales Navigator pricing. You mentioned that it's averaging about $1,200 for the year or about I guess about $100 a month. Looking at the Web site, looks like we're still listing some older pricing. Is that correct? Steve J. Sordello - Chief Financial Officer, LinkedIn Yes, there will be a transition period as we go to market with this product. So it will not be offered directly initially available to all members, except going through a certain path to get there. So there will be a transition period over the next couple weeks here. Dan Salmon – Analyst, BMO Capital Market OK. One quick follow-up. Any update on your Sponsored Updates API program? I know you started it off fairly small with a small group of vendors helping there. But as you get that under way are you looking to expand it any more and ramp up that channel any more? Jeff Weiner – Chief Executive Officer, LinkedIn Yes, we are going to continue to expand it. It has expanded from that initial launch and our initial five or so pilot partners and we're seeing good engagement and strong results, so we're going to continue to invest there. Dan Salmon – Analyst, BMO Capital Market Thank you. Jeff Weiner – Chief Executive Officer, LinkedIn OK. With that, thank you all for joining and we'll talk to you next quarter.

-- END -- Investor contacts Matt Sonefeldt msonefeldt@linkedin.com Matthew Danziger mdanziger@linkedin.com Press contact LinkedIn Corporate Communications Team press@linkedin.com