Investment Thesis: Company Name: LinkedIn Corporation (LNKD) Human Networking has been around since the dawn

of civilization, but the technological developments in the internet age has opened up a whole new dimension of creating networks and employs it for the benefit of social and business users. The year 2010 has been an extraordinary year for social networking sites. LinkedIn which has the focused market approach is going to be an area to watch for in the coming year. LinkedIn was incorporated in Delaware in March 2003 under the name LinkedIn, Ltd. and later changed its name to LinkedIn Corporation in Jan 2005. LinkedIn (LNKD) went public on May 18, 2011 and its share started trading on NYSE from the very next day. The initial offer price was set at $45 per share, valuing the company at $4.32 billion. Social Networking sites provide a platform that allows users to construct a profile, create a personal network, search, invite and communicate with other users. LinkedIn is a variation of social Networking model that was constructed around the idea of connecting and harnessing business relationships. The key revenue streams for the company are 1) Selling recruitment services to employers, 2) Selling premium advertising 3) Selling premium subscriptions to employers and users. The growth driver is going to be the growth in paid subscribers and advertisers. The company will compete with Monster.com in recruitment solution space while it competes with social networking portals like facebook, twitter, Google and yahoo in the online advertising market.

Source: Security Registration statement filed at SEC by LinkedIn on 17th May 2011

The above table shows the contribution of revenue stream to total revenue in percentage.

The site presently has about 100 million users and derives most of its revenue through advertisers and premium services provided to its users and recruiters. The membership is expected to grow at about 30% p.a roughly about 3.0 million on a base of present 100

Prepared by Sujith Menon (24/5/2011) Mailme: sujithmeno@gmail.com

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million users as per LinkedIn forecast. There is a visible shift in contribution from premium subscriptions to hiring solutions. The key driver for the business is membership growth. The key risk area for LinkedIn:

1. The website works on the internet platform which is inherently vulnerable to hacking,
if the security measures enabled by the company are compromised or if the attacks degrade the interest of the members to access/use the services of the website; could seriously harm the business viability of the company.

2. The company has considerable competition in all areas of its revenue streams. 3. The company stores and processes personal information of users in its system, which
is subject to government regulations related to privacy. Any changes in these regulations could harm the business.

4. The companys future prospects are based on its current technology platform as well
as its adaptability and integration ease with communication devices. Any untoward change in the same or laggardness in the companys ability to come out with innovative ideas could push the company out of its business. The company has recorded revenue of 243.1 million in 2010, with net income of 15.4 million. From 2009 to 2010 the net revenue increased by $123 million or 102% and the net income grew by 19.4 million or 487%. In the three months ended march 2011 the revenue has grown to $93.9 million compared to $44.7 million same period last year. The growth in registered membership* is about 60% in 2010 has contributed to 102% growth in revenue (1.7X).
Source: Quotemedia.com

Considering LinkedIn
52wk high: 52wk low: EPS: PE: Yield: Market Cap: Volume:

122.699 1 80.00 0.17 519.40 N/A 9.02 b 3.69 m

to

be

a the

growth focus

company, forecasted

has been applied on earnings. The company sites a probable dip in 2011 sales in the registration statement

Dividend: N/A

filed with SEC. LinkedIn had revenue of $78 million in 2008, $120 million in 2009 and $243 million in 2010. The membership is set to grow at a rate 30% and considering 1.7X (multiple) impact of membership addition on the revenue, the 2011 revenue is estimated to be $367 millions. The Enterprise Value of LinkedIn considering the current market price of
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$95.45 (Total No. of shares outstanding:-94,498,627) and the cash balance on the balance sheet $106m comes to $9.01b - $0.11b = $8.9b. Therefore the forecasted LinkedIn EV/revenue multiple figures out to be 24.3X. The LinkedIn valuation looks very expensive considering the industrys EV/revenue of 2.8X for Apple & 4.9 for Google.

Attachments & References: Financials of LinkedIn sourced from sec filings.

Prepared by Sujith Menon (24/5/2011) Mailme: sujithmeno@gmail.com

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References & Sources:

1. 2. 3.
4.

Security registration statement filed at SEC by Linked: http://files.shareholder.com/downloads/ABEA69T44N/1268179950x0xS1193125-11-142213/1271024/filing.pdf http://www.nyse.com/about/listed/lnkd.html http://investors.linkedin.com Quotemedia.com

Prepared by Sujith Menon (24/5/2011) Mailme: sujithmeno@gmail.com

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