3 Reasons LinkedIn Corp. Stock Could Rise

By Markets Fool.com

There's no denying LinkedIn's most recent quarter and fiscal year ended with a bang. Leading up to last week's earnings announcement, analysts and investors alike were divided in terms of what to expect from LinkedIn. Several analysts altered their respective recommendations, to the extent that LinkedIn investors were left with target prices ranging from $230 a share to $280 a share.

Continue Reading Below

Thankfully for shareholders, CEO Jeff Weiner and team more than delivered, beating both analyst expectations and LinkedIn CFO Steve Sordello's forecast from the prior quarter -- and handily. The result? Trading after hours and the day following LinkedIn's earnings beat resulted in a more than $30 a share spike, which begs the question: What does LinkedIn need to do for the balance of 2015 to keep positive momentum going?

A brief recap
The nearly unanimous good tidings following LinkedIn's earnings news was largely due to surpassing virtually everyone's expectations, from a revenue and earnings perspective. As per Sordello, revenue forecasts were for somewhere between $600 million-$605 million in Q4, while analyst's estimates suggested $618 million was more likely.

Turns out, both expectations undershot LinkedIn's whopping $643 million in revenue, a 44% improvement over the prior year's Q4 results. On a non-GAAP basis (excluding one-time items), earnings-per-share of $0.61 handily beat 2013's Q4 $0.39 a share. With results like that, investor's positive reaction wasn't surprising. And even with its sky-high stock price, LinkedIn's stock could rise even further if its able to perform in a few, key areas.

A baby step in the right direction
A concern voiced by many ahead of LinkedIn's earnings news was further diversifying its three, primary revenue sources. As it stands, its Talent Solutions unit drives the majority of LinkedIn's sales. That said, Q4 saw a slightly better balance across Talent and Marketing Solutions revenues. In LinkedIn's third quarter, Talent accounted for 61% of total revenues, Marketing 19%, and Premium Subscriptions 20%.

Last quarter, Talent accounted for 57% of LinkedIn's $643 million in sales, and Marketing's share of the revenue pie rose to 24%. Premium Subscription's $121 million in revenues was again equal to 20% of LinkedIn's total. A significant change for the better? No, but it is a step in the right direction, and comes at a time social media king Facebook is toying with a professional networking solution of its own.

Continue Reading Below

Facebook at Work, which is currently being beta tested, won't be a direct competitor of LinkedIn's initially, it's more of a business collaborative tool. But with Facebook's extensive resources and scale, it's not a stretch to imagine Work branching into other professional services, ala LinkedIn. The prospect of serious competition from the likes of Facebook will make a balanced stream of revenue sources even more crucial going forward.

Keep mobile moving
As Facebook has demonstrated, going mobile isn't just a nicety, it's a necessity. Much of the growth Facebook shareholders have enjoyed the past year is due to its successful transition to mobile: and the same applies to LinkedIn. If last quarter is any indication, LinkedIn's mobile efforts -- which were mentioned prominently by Weiner and Sordello during the conference call -- are paying dividends.

Nearly half of LinkedIn's traffic now comes from mobile users, up from 47% in 2014's Q3. Like the diversification of its revenue sources, LinkedIn's transition to becoming a mobile solution isn't happening by leaps and bound, and that's alright. Demonstrating steady improvement in this key area will support both member and revenue growth in the coming months, and beyond.

It's all about the members
LinkedIn ended 2014 with an impressive 347 million members, most of which are outside the U.S., up from the prior quarter's 332 million. Adding 15 million new users sequentially may not strike some as overly impressive, but let's put that in perspective. Twitter for example, added a paltry 4 million new monthly average users last quarter, bringing its total to 288 million.

Twitter should cast a much broader net than LinkedIn, in terms of prospective users. LinkedIn's focus on professionals makes it more of a niche player than Twitter, yet it added nearly four times as many users as the tweet-master last quarter. If LinkedIn can maintain its impressive new member growth rates, continue its successful revenue diversifying efforts, and grow its mobile presence even further, the balance of 2015 could be just enjoyable for shareholders as the first month has been.

The article 3 Reasons LinkedIn Corp. Stock Could Rise originally appeared on Fool.com.

Tim Brugger has no position in any stocks mentioned. The Motley Fool recommends Facebook, LinkedIn, and Twitter. The Motley Fool owns shares of Facebook, LinkedIn, and Twitter. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.