LinkedIn Takes Facebook to School!
When it comes to publicly traded social-media companies, two names dominate the conversation. Facebook (NASDAQ:FB) and LinkedIn (NYSE:LNKD) are both social giants that are relatively new to public trading and already demand a heavy amount of attention. However, their stories could not be more different. LinkedIn’s initial public offering has been labeled a success on its resume, while Facebook’s IPO has been tagged as a failure from the beginning.
What a difference a year can make. LinkedIn made its public trading debut on the New York Stock Exchange (NYSE:NYX) in May 2011. In the first day of trading, shares more than doubled from $45 to $94.25. In comparison, Facebook’s IPO priced at $38 last month and by the end of its first trading day on the Nasdaq (NASDAQ:QQQ), shares closed just 23 cents higher. After only two weeks of trading, Facebook shares fell nearly 30 percent. It was the worst two week performance following an IPO since 1995.
There are many reasons for Facebook’s dismal trading performance so far, including: analyst warnings prior to launch, slowing earnings, uncertainty surrounding a mobile strategy, Nasdaq trading errors and simply an overvaluation of the company. Mark Zuckerberg even said in a Securities and Exchange Commission filing that “Facebook was not originally created to be a company. It was built to accomplish a social mission, to make the world more open and connected.” LinkedIn on the other hand, is all about taking care of business.
In a recent interview at the AllThingsD conference, LinkedIn CEO Jeff Weiner laid out a clear cut case on how his social network is different from others. He said, “LinkedIn is not about passing time; it’s about enabling our members to save time, it’s about productivity.” LinkedIn, which has 161 million members in over 200 countries, receives the largest share of its revenue from hiring solutions. The company seeks to transform the way businesses hire, market and sell. At the end of the first-quarter, LinkedIn counted executives from all 2011 Fortune 500 companies as members and its corporate hiring solutions are used by 82 of the Fortune 100 companies. More than 2 million companies have LinkedIn company pages. The California-based company also receives revenue from marketing solutions and premium subscriptions.
In contrast, Facebook, which boasts 900 million users, receives the majority of its revenue from advertising. This strategy has come under fire recently with General Motors (NYSE:GM) pulling ads and Facebook even admitting that it is having trouble with generating revenue on mobile devices. Instead of mobile hindering its business, LinkedIn has been able to enhance its operating model by embracing small-screen connectivity. The company has an Apple Inc. (NASDAQ:AAPL) iPad and iPhone app that allows on-the-go access to its professional network and provides an “everyday value proposition,” according to Weiner.
Facebook has potential given its massive user base, but it is still unclear if the company can monetize users and provide significant shareholder value to new investors. Last month, Facebook started testing a new feature that allows the average user to pay to highlight specific status updates. However, this strategy is still in the early stages and seems unlikely that users will be willing to pay for a service that has traditionally been free and mainly used to waste time. While Facebook develops its strategy going forward, the stock continues to take a beating. On Monday, shares fell more than 2.96 percent to close at $26.90. During the trading day, the stock hit a brand new low of $26.44 since the IPO.
The downward move coincided with Bernstein Research launching coverage on Facebook with an Underperform rating and a $25 price target. According to Forbes, analyst Carlos Kirjner explains, “We believe there is material risk that over the next 12 months investors will question Facebook’s ability to achieve our forecasted 2013 revenues as near-term revenue growth decelerates. While this deceleration may ultimately prove to be a temporary setback if, over time, Facebook manages to improve monetization of its inventory (both PC- and mobile-based) and maximize the value of social advertising, it will likely drive additional downside pressure on the stock beyond what is already reflected in our price target. Therefore, it is difficult to argue for owning the stock today.”
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