Facebook Inc (NASDAQ:FB) has been the darling of the social media world of late. Up nearly 60 percentage points over the past month, the company’s stock price has finally snuck above last year’s IPO price of $38—a fresh breath of sweet relief for many investors. Despite this psychological victory, there’s another play in this space that has more upside moving forward.
To avoid the suspense, let’s just come out with it: we’re talking about LinkedIn Corp (NYSE:LNKD).
Although it’s known by many of Web 2.0’s users as a less informal hybrid of Facebook Inc (NASDAQ:FB), Twitter and Yahoo! Inc. (NASDAQ:YHOO)’s Tumblr, this classification is incomplete. There’s much more to LinkedIn than meets the eye.
Let’s look at five reasons why it is positioned to be the dominant social media investment over the next decade, when Web 3.0—the next iteration of the Internet—finally takes hold.
1. The vision
In the company’s first quarter conference call earlier this year, Weiner says his goal is “to become the definitive professional publishing platform, where professionals come to consume relevant content and publishers come to share it.”
This statement sums up LinkedIn Corp (NYSE:LNKD)’s plans to morph itself into a fully-fledged publisher quite nicely. Simply put, the company’s strength lies in its ability to roster more than 250 titans of industry known as “Influencers.” Some CEOs, others top minds in academia, LinkedIn’s Influencers range from Arianna Huffington to T. Boone Pickens, with a dash of Mark Cuban thrown in for good measure.
The company’s April acquisition of social reader Pulse only adds to ex-Fortune editor Dan Roth’s sizable team of talent, and that’s just the beginning.
2. A new wrinkle
The second piece of this puzzle, which Weiner alludes to in the aforementioned quote, is the publishers’ side of the equation. Officially announced in a company blog post from VP David Hahn last month, LinkedIn Corp (NYSE:LNKD) will now allow any entity with a company profile to employ Sponsored Updates. According to Hahn, these promotional updates will appear on targeted users’ homepage feeds, effectively acting as a dual-communiqué to potential customers or jobseekers.
With over 3 million company pages on LinkedIn, that’s a large marketplace from the get-go.
iProspect has a nice summary of the initiative, which basically indicates that: (1) users can hide Sponsored Updates if need be, (2) cost-per-click and cost per thousand impression payment options are both available, and (3) the promotional posts “appear after 15 organic posts,” according to the digital marketing firm.
3. Diversification
This brings us to our next point: revenue diversification. Depending on the quarter, roughly 80-85% of Facebook Inc (NASDAQ:FB)’s top line comes from advertising dollars. LinkedIn Corp (NYSE:LNKD), on the other hand, is significantly less reliant on ads, with the stream making up close to 30% of total revenue. A near-even split between premium subscriptions and job listings make up the remaining 70%; Sponsored Updates will likely lead to further fragmentation.
It is this lack of overreliance on one source of revenue that truly represents the most attractive aspect of LinkedIn from an investment standpoint. Facebook Inc (NASDAQ:FB) is unprotected against wide swings in market value if mobile or desktop advertising figures miss Wall Street expectations in any given quarter. A LinkedIn shareholder is less exposed.
Likewise, LinkedIn Corp (NYSE:LNKD) is significantly more profitable than Facebook Inc (NASDAQ:FB), maintaining gross margins near 87%. Mark Zuckerberg & Co typically report margins 13 to 14 percentage points less than this mark.
Sell-side analysts, meanwhile, expect LinkedIn to generate earnings growth near 60% a year over the next half-decade, according to market averages. Facebook’s aggregate forecast rests much lower, near 30% a year through 2018.
4. Reach
In terms of a profile-maintaining user base, Facebook Inc (NASDAQ:FB) takes the cake with 1 billion strong to LinkedIn Corp (NYSE:LNKD)’s 225 million users. When we consider the total reach of Jeff Weiner and Dan Roth’s budding professional publishing platform, LinkedIn’s footprint is far larger. The site receives over 130 million unique visitors each month per COMSCORE, Inc. (NASDAQ:SCOR).
As a news aggregator (user and company-generated posts) and an original content producer (Influencers), LinkedIn is the largest news site in the world. eBizMBA estimates the second largest to be Yahoo! Inc. (NASDAQ:YHOO) News with 110 million uniques, followed by Time Warner Inc (NYSE:TWX)’s CNN (74m), Comcast Corporation (NASDAQ:CMCSA) and NBCUniversal’s MSNBC (73m), and Google Inc (NASDAQ:GOOG)’s Google News (65m).
Sure, LinkedIn Corp (NYSE:LNKD) established their user profile system first, but that’s precisely why it is in the driver’s seat to rule news in the Web 3.0 world. Most of its media competitors, aside from content aggregator Reddit, are attempting to add profiles in after the fact.
Can you ever imagine a day where CNN’s profile numbers outrank LinkedIn’s? We thought not, but you get our point. We’d rather invest in the company that is positioning itself to be a leader in next-gen content delivery with a large user base already in existence.
5. Smart money support
With that being said, many members of the hedge fund industry appear to be in agreement with this outlook.
Of the 500-plus elite hedge fund managers we track at Insider Monkey, 40 were long LinkedIn at the end of the last filing period with the SEC. This total remains unchanged from the end of 2012, which is a fact we cannot say about Facebook. The number of top hedge funds invested in the social network has fallen by 35% since last winter, and stands at 49 as of the latest data.
In this case, it looks it’d be smartest to stick with momentum over the aggregate.
A couple big-time investors who hold LinkedIn in their equity portfolios include Jim Simons and Philippe Laffont; George Soros also built a small position in his last 13F filing.
Let’s be honest
To be frank, long-term, game-changing investment opportunities don’t come around like this too often. It’s tempting to buy into the Facebook Inc (NASDAQ:FB) hype now that its IPO barrier has been broken, but the combination of LinkedIn Corp (NYSE:LNKD)’s promising future with its solid foundation is too beautiful to pass up.
When Web 3.0 rolls around several years from now, don’t look back and kick yourself for not taking a stake in its most dominant publishing platform. It’s just that simple.
Click here to learn more about Insider Monkey’s Hedge Fund Newsletter.
Insider Monkey’s small-cap strategy returned 55.6% between September 2012 and July 2013 versus 22.2% for the S&P 500 index. Try it now by clicking the link above.
Disclosure: none
