Better Buy: LinkedIn Corp. vs. Facebook Inc.

By Markets Fool.com

It may seem like a distant memory now, but it was just February of this year that LinkedIn (NYSE: LNKD) lost nearly half its value following a "disappointing" 2016 Q1 outlook. At the time, even CEO Jeff Weiner was at a loss to explain investors' knee-jerk reaction, but a lot has happened since then, including being acquired by Microsoft (NASDAQ: MSFT) for a whopping $26.2 billion, making it the largest acquisition in the cloud king's history.

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While changes are undoubtedly on the way for LinkedIn, Facebook (NASDAQ: FB) continues to purr along. Revenue is soaring, Facebook is approaching 2 billion monthly active users (MAUs), and the notion that all those MAUs aren't fully engaged with the social network have been dispelled. Of course, the higher Facebook climbs, the further it could fall should anything go awry.

So, which is the better buy, LinkedIn or Facebook? Thankfully for investors, an argument can easily be made for either.

Image source: LinkedIn.

The case for LinkedIn

Even before the Microsoft acquisition news broke in June, LinkedIn's stock had slowly rebounded from its post 2015 Q4 sell-off, and rightfully so. As LinkedIn demonstrated last quarter, all three of its units are performing. Talent solutions, handily LinkedIn's largest revenue driver, jumped 38% in Q2 to $443 million, equal to 62% of its $712 million in total sales.

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Marketing solutions climbed 32% to $140 million and premium subscriptions increased 22% to $128 million. Not bad across the board, though further revenue diversification -- which has been a thorn in LinkedIn's side for years -- would be nice to see. And that may be coming once the Microsoft deal closes.

Unlike Facebook's mind-boggling 1.71 billion MAUs, the vast majority of LinkedIn's nearly 400 million professional members -- 97 million of whom now access the site monthly -- are right in Microsoft's wheelhouse. As Microsoft CEO Satya Nadella told TheWall Street Journal following the announcement of the LinkedIn deal, "It's really the coming together of the professional cloud and the professional network."

As for further diversifying revenue sources, the LinkedIn-Microsoft combination could prove to be ideal for one simple reason: data. LinkedIn amasses reams of information on its professional members, and Microsoft will soon be able to utilize that to better target ads, boosting LinkedIn's marketing solutions results, drive more premium subscriptions, and boost its own Office 365 and Dynamics CRM sales.

Image source: Facebook.

The case for Facebook

As Facebook demonstrated again last quarter, it's become the go-to source for social media advertising. Industry guru eMarketer estimates Facebook will generate $22.37 billion in ad sales this year -- which is conservative given it reeled in $6.24 billion in Q2 -- equal to more than two-thirds of the world's social media advertising spend.

As dominant as that is, thanks in large part to Facebook's foray into video spots, it's a mere drop in the bucket compared to what's coming. The decision to monetize Instagram and its more than 500 million MAUs have certainly padded Facebook's advertising coffers, and it could prove to be small potatoes with what's waiting in the wings.

Though still in its infancy, the recent easing of WhatsApp's privacy policy to share user data with Facebook is widely seen as a first step in monetizing its more than 1 billion MAUs. Facebook's Messenger also boasts more than 1 billion monthly users, and that's still sitting on the back burner as it relates to generating revenue.

Perhaps most impressive is Facebook was able to increase ad sales 63% year over year in Q2, with Instagram just hitting its stride and without any help from WhatsApp and Messenger. There is no end in sight to Facebook's upside, and for that reason, combined with the uncertainty of the LinkedIn-Microsoft combo -- though don't be surprised to see both parties prosper down the road -- Facebook gets the nod as the better buy.

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Tim Brugger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Facebook. The Motley Fool owns shares of LinkedIn and Microsoft. 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.