I’ve said it before and I’ll say it again: LinkedIn Corp (NYSE:LNKD) is a smoke and mirrors illusion. Buyer beware.
LinkedIn’s stock took a hit last week after the online professional networking service forecast called for a slowdown in future quarters while the company beefs up its infrastructure (hires more workers, invests in data centers and makes changes to online ads).
But until then, the company’s first-quarter earnings and revenue topped the analyst estimates that steer Wall Street expectations.
LinkedIn makes most of its money by charging employers and headhunters for analytical tools and additional access to LinkedIn Corp (NYSE:LNKD) profiles and the site, such as the ability to send messages to users. Note: it does not make money off of advertisements? Why? Because advertisers insist on seeing numbers such as daily views, returning visits, and length of visits. Those numbers do not look good on LinkedIn, and advertisers do not get a good return on investment. And so rather than making money off of paid ads (like all other major social networking sites, like Google Inc (NASDAQ:GOOG) + and Facebook Inc (NASDAQ:FB), the company has to charge for services. Headhunters don’t need the same numbers as advertisers do. (It is incorrect and unfair to compare LinkedIn Corp (NYSE:LNKD) to social networking sites. The company is by its own definition and objectives, a career placement and recruiting site, and should be compared to those types of businesses. More on that below.)
The service now has 225 million members, up from 202 million members at the end of last year (but where do those new members live? And how many of those 225 million members frequent the site on a regular basis? Even as I ask the question, LinkedIn is attempting to add more content and give members a reason to return (because they were not and are not returning- investors need to be aware of this! Why are their heads in the sand?). That is a number that sounds good to headhunters or recruiters who like a high quantity of users. But those paying customers will soon leave the site if all of the growth is overseas, and not in the more lucrative Western markets that the recruiters pull from.
LinkedIn Corp (NYSE:LNKD) earned $22.6 million, or 20 cents per share, in the first quarter, up from $5 million, or 4 cents per share, in the same period a year earlier. Revenue grew 72 percent from last year to nearly $325 million – around$7 million higher than analysts’ expectations.
Over the first quarter, sales in LinkedIn’s core recruiting business rose 80% to $184.3 million. Its marketing solutions business (primarily ad revenue) were down slightly from the prior quarter. The company’s “premium subscriptions,” rose 73% to $65.6 million.
One reason for the revenue and earnings growth was that LinkedIn Corp (NYSE:LNKD) raised prices to $8,200 from $7,000 for corporate recruiting services. The company said it increased its user base to 218 million in the first quarter, up from 202 million in the fourth quarter. That includes reaching the one million users benchmark in Singapore, and four million benchmark in Australia. There are 19 million members in Indian, and 3 million in China.
One thing that LinkedIn does not do compared to the competition at Monster Worldwide, Inc. (NYSE:MWW) and CareerBuilder is breakdown revenue and income geographically. Monster and CareerBuilder both show North American revenue, as well as international revenue.
Monster’s North American revenue was down 3% on a year-over-year basis and up 4% sequentially. The economic and political environment in the U.S. remains mixed, largely driven by the cost covenants of sequestration, political gridlock and slower-than-normal recovery in the employment market. As a result, companies are not investing as much into corporate recruitment services. Monster Worldwide, Inc. (NYSE:MWW)’s revenue in Asia-Pac was down 10% on a year-over-year basis and down 6% sequentially.
Why has LinkedIn Corp (NYSE:LNKD) not reported numbers based on geography? What does it have to hide?
LinkedIn should be compared to Monster, CareerBuilder, or DICE HOLDINGS, INC. (NYSE:DHX), and not to other social networks. Because corporate recruiters and job hunters do not use Google Inc (NASDAQ:GOOG) Plus or Facebook Inc (NASDAQ:FB) or Twitter in the same way that they do Monster, Dice, or LinkedIn. LinkedIn is a career placement service provider and should be compared to other career placement service companies.
Monster reported net income of $5 million, or 4 cents per share, in the same first quarter. That compares to $3.7 million, or 3 cents per share, in the same period a year ago. Total revenue fell 9 percent to $212 million from $233.8 million, but it was still above the $210.5 million that analysts expected.
At DICE HOLDINGS, INC. (NYSE:DHX) revenues for the quarter totaled $50.4 million, an increase of 9% from $46.1 million in the comparable quarter of 2012. Net income for the quarter ended March 31, 2013 totaled $7.1 million, resulting in diluted earnings per share of $0.12 for the first quarter of 2013. Dice Holdings has a 1-year low of $6.95 and a 1-year high of $10.94. Dice does not break down earnings geographically, but by industry or employer segment (Tech, Energy, Finance, Other).
LinkedIn Corp (NYSE:LNKD) may continue to look like a great buy for a while yet. It looks fantastic next to the competition. But sooner or later it will turn into one of the biggest bubble pops in Wall Street history. The company offers little value, and chooses to provide numbers to advertisers and customers that mask reality. Where are the real numbers of returning users by geography? How do we know that the returning daily users on the site are not all recruiters? Where are the studies that show concrete proof that LinkedIn is connecting users with employers? Where are the studies that prove that North American recruiters aren’t paying to reach 220 million users that are primarily only active in India?
LinkedIn continues to give me indigestion in the way that only a smoke and mirrors illusion about to crumble can.
The article LinkedIn Is a Smoke and Mirrors Illusion originally appeared on Fool.com and is written by Erin McBride.
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