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June 18, 2013 How are LinkedIn performing? Mike Fahey, Executive Vice President

How are LinkedIn performing?

There are a number of fashionable subjects to blog about within the recruitment industry, topics such as the death of the job board, mobile influences, video recruitment and social media are often keenly discussed. I contemplated weaving those topics together, perhaps discussing how videoing yourself on your mobile and submitting it to a social network will ultimately lead to the death of a job board, however thought better of it given each individual topic is more than enough to discuss in a single blog post.

For example, advocates of the death of the job board might go on to discuss user fatigue, membership growth rates, an increasingly global marketplace producing international challenges, and overall profitability of the model. That’s a lot of ground to cover in a reasonably short blog post.

I’ve actually settled on social media, and within social media recruitment refined it further to the one obvious organisation to discuss: LinkedIn.

LinkedIn is a professional social network with over 200 million members. It provides recruitment services that compete with traditional job boards, along with various other offerings such as corporate marketing or premium jobseeker statuses. They reported results in 2012 of just under 1 billion USD which lead to a further flurry of praise, concern and comments within the recruitment and wider media industry.

LinkedIn is also a public company, having floated a few years ago, which means their full accounts must be published for anyone to view.

The most immediate number quoted would be the amount of revenue produced in a year, this is often a headline figure used to show growth of the organisation when compared to the previous period. The graph below shows the LinkedIn revenue growth year on year. As you can see in 2012 this revenue was just short of $1 billion USD, robbing them of breaking that significant milestone for another 12 months but still a great performance. As an aside, for those who wish to have some contextual reference at this point, Monster Worldwide made just over $1 billion, while Facebook’s results were considerably over this milestone at around $5 billion.

So we know at a high level the amount of revenue produced, but where is this money coming from? We can breakdown the income by product line, this is interesting as it highlights how successful particular ventures are within LinkedIn. All users of the network will recognise the ‘LinkedIn Premium’ prompts they email, I seem to get a reminder telling me I am about to miss my chance to become a premium account every week or so but, somewhat miraculously, it seems I am always given another chance to obtain this status at a discounted price only a few days later. The question for those interested in the company is how much money does that make when compared to something like the career pages?

For those unfamiliar with LinkedIn’s monetisation methods, they fit into three categories of product:

The first two, around recruitment, targeting and branding, are predominantly B2B services and are where you would find the traditional job boards. The third one would be more a B2C service set, premium jobseeker status being one example along with those emails they keep sending me and, I suspect, you.

Breaking down the yearly revenue in 2012 and we can see that the majority of it has come from Hiring Solutions. Perhaps no surprises there, given the amount of money that is within online recruitment. Looking back this has been growing at a much greater rate than the other products in the last few years, had you looked at a similar pie chart to the one below in 2009 it would have been around 30% blue, representing 36 million.

So a significant amount of revenue being generated from online recruitment and in competition with the job boards, but does that equal a hugely profitable organisation?

When it comes to the profitability, one of the first observations to make is the amount of cash LinkedIn is spending each year compared to the amount of revenue it produces. The graph below shows the difference between the amount of revenue being brought into the organisation and the amount spent in developing it and keeping it running on a day to day basis.

You’ll see the lines are very closely aligned, getting slightly further apart in the recent year but still broadly LinkedIn is burning through as much as they generate. This is as a result of the company being in an aggressive growth period, and you can see, by analysing exactly how that money is spent, where the organisation feels it needs to push and develop for the future.

The cost comes from predominantly investment in sales and product development, together forming over well over half of their annual spend and increasing significantly year on year to fuel membership growth, which reached over 200 million this year:

The dramatic increase in marketing, product and sales all stems from the required to keep their audience engaged and increasing. One of the threats LinkedIn has, and the reason you see them launch more and more content style functionality across multiple devices, is users not being engaged or interested in their profiles. You could argue that actually the growth in the last year, membership wise, has not been as successful as they desired given the amount of money invested, but that would, of course, be purely a speculative opinion. The obvious way to combat that is increasing product, marketing and by aquistions such as their recent SlideShare purchase, which for reference was nearly $119 million cost.

In addition to increasing membership the obvious goal for LinkedIn is to increase overall revenue, specifically around the international market. That sales and marketing spend we highlighted earlier accounts for their desire to take the international recruitment markets. At present their revenue is heavily weighted within America and when it comes to the rest of the world there is much less of an impact, but conversely therefore much more of an opportunity for them.

To demonstrate this we can look at their revenue breakdown for USA vs. EMEA, which is 63% vs 22% in 2012. Such a significant amount of revenue being based in one country, and in an industry heavily impacted by the overall economic climate, means this is seen as a risk by the LinkedIn board and will influence their strategy.

LinkedIn is a very good example of an organisation with a highly aggressive growth strategy, investing nearly all the money it produces and firming up a clear monetisation strategy. One part of that strategy is to take revenue made by the traditional job board.

When you break these financial figures down you can see that the company faces a number of challenges such as user fatigue, membership growth, international challenges and profitability. Sound familiar? You could say they share a lot of the same high level challenges facing many traditional job boards.

Rather than being a killer of job boards, LinkedIn is just another recruitment channel and one that does not appear, at time of writing, to be replacing the job board, but it does mean job boards have to continue to evolve and adapt to their own challenges, becoming the best of breed in their recruitment offerings.

So I managed to weave two of the topics together after all.

I hope the above has given a flavour of the financials of LinkedIn, you can find more information on this subject by looking through the LinkedIn Investor Relations web site and further information on the recruitment industry by continuing to follow our Madgex blog.

Madgex job board software Benchmarking report