Investment Proposal. March 19th, Jenny Park Arthi Sairam. LinkedIn Corporation (NYSE- LNKD)

Transcription

1 Investment Proposal LinkedIn Corporation (NYSE- LNKD) March 19th, 2016 Jenny Park Arthi Sairam

2 Agenda I. Executive Summary II. Business Overview A. Company Overview B. Free Solutions C. Monetized Solutions D. Member Value Metrics E. Revenue Growth Breakdown F. Projected Growth Talent Solutions & Marketing Solutions III. Industry Outlook IV. Valuations A. Discounted Cash Flow B. Trading Comparable C. Analyst Sentiments V. Conclusion 1

3 Executive Summary LinkedIn s increasing focus and growth around core existing products and uniqueness in its customer target of professionals, makes the company a highly attractive investment. LinkedIn is the world s largest professional network on the Internet with over 400 million members in over 200 countries as of They provide the most extensive, accurate and accessible network focused on professionals. Many products are at no cost to members while a critical mass of their network also enables them to create value through Talent Solutions, Marketing Solutions, and Premium Subscriptions. These products are sold through two channels, an offline field sales organization that engages both large and small enterprise customers; and an online channel where enterprise customers, small business, and individual members purchase products on a self- service basis. 2

4 Business Overview

5 Company Overview Revenue Distribution by Revenue Stream Revenue Distribution by Geography 21% 17% 62% Talent Solutions Marketing Solutions Premium Subsciptions 19% 8% 6% Americas 67% Europe Asia/Pacific Africa & Middle East Business Segment Overview Free Solutions Monetized Solutions Stay Connected & Informed Advance My Career Talent Solutions Marketing Solutions Premium Subscriptions 4

6 Free Solutions Stay Connected & Informed General free product available to all subscribers Few significant aspects include: o Pulse o Slideshare LinkedIn Flagship: o Feed, Me, Messaging o My Network & Search o People You May Know o Search Advance My Career Additional service that helps members seek job opportunities, view company pages, and endorse skills Few significant tools include o Job Search App o How You Rank o Rich Media/Skills/Endorsements allows members to provide examples of their work and skills LinkedIn Flagship 5

7 Monetized Solutions Talent Solutions Provides innovative recruiting tools to help customers become more successful at talent acquisition and professional development Products aim to be most effective way for enterprises and professional organizations to efficiently identify and acquire right talent for their needs 33% Talent Solutions Hiring Net Revenue Growth from 2014 Marketing Solutions Enables enterprises and individuals the ability to advertise to the existing LinkedIn member base. Allows marketers to reach potential customers according to a number of attributes such as industry, function, seniority, company size, etc.. Few features include: o Sponsored Updates o LinkedIn Ads o Sponsored InMails o Display Ads Talent Solutions Learning & Development Provides online education courses that aim to make it easy for professionals to accelerate their careers and realize their potential by learning new skills Lynda.com provides a full video training library indexed by subject, software, and new releases. Relatively new service after the acquisition in May, 2015 and takes up 4% of total revenue Premium Subscriptions The Premium Subscription services target small- and medium- sized enterprises and professional organizations, individual members and business groups in larger enterprises. All subscription packages are designed for general professionals to manage their professional identity, grow their networks, and connect with talent. Few key features in the subscription bundles include: o Larger Search Listing o How You Rank o InMail Messages to anyone o Who s Viewed Your Profile 6

8 Revenue Growth Breakdown In millions $3,000 $2,500 $2,000 $1,500 $1,000 $500 $ Source: Company Filings 2015 Talent Solutions (Hiring) Talent Solutions (L&D) Marketing Solutions Premium Subscriptions 7

9 Member Value Metrics Members (mn) Unique Visiting Members (mn) Member Page Views (bn) Strong corporate customer additions Accelerating user engagement, which will drive Marketing Solutions monetization higher Talent Solutions has a large growth potential despite high penetration levels in certain industries Source: Company Filing 8

10 Projected Growth: Talent Solutions Projected Growth (US$ in billions) $3.6 $3.0 $2.5 $4.1 $4.7 Only 68% of large US enterprises are paying LinkedIn customers and only 9% of 87,000 US small and medium- sized businesses are on the platform. Talent Solutions has a large growth potential despite high penetration levels in certain industries Estimate of ~1,400 new corporate solutions customers, reaching a 44.3k total Predict ~200bp of EBITDA margin expansion with lynda.com acquisition becoming accretive 2 $ A 2016E 2017E 2018E 2019E 2020E 9

11 Projected Growth: Marketing Solutions Projected Growth (US$ in millions) $1,026 $1,201 LinkedIn s industry- leading engagement, improving and unit offerings, targeting and pricing position it to become the Facebook for advertisers seeking to reach professionals. Better than expected user growth and engagement will drive Marketing Solutions monetization higher $ $656 $ $ A 2016E 2017E 2018E 2019E 2020E 10

12 Economy and Industry Overview

13 Industry Outlook Sales Outlook (US$ in million) Earnings Outlook (US$ Earnings Per Share) $200,000 $150,000 $100,000 $50,000 $0 $12 $9 $6 $3 $0 US Internet Software/Services 1Yr Historical Return 30% 20% 10% 0% - 10% U.S. World - 20% 03/04/ /13/ /22/ /30/ /09/ /17/

14 Valuations

15 Historical Stock Price LNKD 5 Year Performance Acquisition of Lynda.com $300 $250 $200 Secondary offering of new stock ~$1billion Recent price drop due to lower than expected growth $150 End Price: $ $100 $50 06/03/ /18/ /03/ /18/ /03/2015 $3.35 $- 03/18/2016 LNKD MMW Source: Factset 14

16 Discounted Cash Flow Analysis Actual Projected Annual Forecast in millions Dec '13 Dec '14 Dec '15 Dec '16 Dec '17 Dec '18 Dec '19 Dec '20 Sales % growth 57% 45% 34% 27% 19% 18% 16% 14% COGS % sales 13.3% 13.2% 14.0% 13.5% 13.5% 13.5% 13.5% 13.5% EBITDA % of sales 24.6% 26.7% 26.1% 28.0% 29.0% 30.0% 34.0% 34.0% Depreciation & Amortization % of sales 8.8% 10.7% 14.1% 10.0% 10.0% 10.0% 10.0% 10.0% EBIT % of sales 15.8% 16.0% 12.0% 18.0% 19.0% 20.0% 24.0% 24.0% Taxes (30% rate) NOPAT Capex % sales 18.2% 24.7% 17.0% 10.0% 10.0% 10.0% 9.0% 9.0% Change in NWC % sales 7.9% 4.4% - 0.8% 1.4% 1.4% 1.4% 1.4% 1.4% Unlevered FCF WACC 8.07% Perpetual Growth Rate 3% Discounted Cash Flow Summary PV of FCF 4,399.3 PV of TV 21,315.5 Enterprise Value 25,714.8 Net Debt 1,126.5 Implied Equity Value 24,588.3 Total Number of Shares Outstanding 132 Implied Share Price Implied Share Price Perpetual Growth Rate 1.50% 2.00% 2.50% 3.00% 3.50% 7.07% % % % Discount Rate 9.07%

17 Trading ComparablesAnalysis Name Ticker End Date EV/Sales EV/EBITDA EV/EBIT P/E EPS LINKEDIN CORPORATION LNKD- US 12/31/ NEG NEG FACEBOOK, INC. FB- O 12/31/ TWITTER, INC. TWTR- N 12/31/ NEG NEG NEG 0.82 MICROSOFT CORPORATION MSFT- O 12/31/ ALPHABET INC. GOOGL- O 12/31/ AMAZON.COM, INC. AMZN- O 12/31/ (2.40) YAHOO! INC. YHOO- O 12/31/ NEG NEG NEG (0.62) EBAY INC. EBAY- O 12/31/ YELP INC. YELP- N 12/31/ NEG NEG (1.08) NETFLIX, INC. NFLX- O 12/31/ PANDORA MEDIA, INC. P- N 12/31/ NEG NEG NEG 5.36 Mean Median High Low (2.40) 16

18 Valuation Ranges Football Table Method Perpetuity Multiples Current Price Target Price Trading Comps EV/EBIT EV/EBITDA EV/Revenue P/E Source: Factset $ $

19 Analyst Sentiment Despite recent stock plunge, analysts are still relatively bullish on the estimates. Price Estimates Recommendation Trends $280 (+107%) 20 $113 (as of Mar- 16) $190 (+40%) $ Last Month Two Months Ago Three Months Ago Max, Average, Min Forecasts Strong Buy Buy Hold Source: Thomson One 18

20 Recommendation

21 Buy LinkedIn s increasing focus and growth around core existing products and uniqueness in its customer target of professionals, makes the company a highly attractive investment. Key Drivers of the company including Talent Solutions, Marketing Solutions, Sales Navigator, has large growth potential despite increasing competition in the industry. Potential catalysts include: Upward estimate revisions based on recent lynda.com acquisition Faster than expected revenue and EBITDA growth from LinkedIn s Talent Solutions and Marketing Solutions products Evidence of Sales Navigator gaining traction with expected next monetization seed addressing 825mn sales professionals (2018E) 20

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