|Shares Out. (in M):||133||P/E||0||0|
|Market Cap (in $M):||16,651||P/FCF||0||0|
|Net Debt (in $M):||-1,796||EBIT||0||0|
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LinkedIn is a compelling long that I believe will revisit its recent highs in the mid-$200s in the next 18 months, as engagement is accelerating and FCF is inflecting sharply higher. A juggernaut and effective monopoly in what has become the winner-take-all industry of global professional networking, with an irreplicable and extremely valuable global Economic Graph asset and 86% gross margins, LNKD has recently been abandoned by growth investors and not yet identified by the value community. At today’s price, using conservative assumptions, we are paying only ~9x 2018E and ~6x 2020E Standalone EBITDA for a company growing operating income at a mid-30s rate, a massive runway for future growth, and several clear levers to pull to cause earnings to gap up substantially in quarters to come. Given LNKD’s one-of-a-kind Economic Graph and platform, there would be tremendous revenue and cost synergy with a number of offensive and defensive strategic buyers, including Google, Microsoft, Facebook and Salesforce. Founded and controlled by one of the world’s preeminent technological and societal visionaries, Reid Hoffman, and managed by one of the most respected non-founder CEOs in Silicon Valley, Jeff Weiner, LNKD shareholders are backing an elite team with a $2bn+ ownership stake. Importantly, I see a low probability of permanent capital loss from this price.
Based in Mountain View, CA, LinkedIn Corporation (“LNKD”) is the ubiquitous professional networking platform which connects the world’s professionals to make them more productive and successful, and transforms the way companies hire, market and sell. The company’s vision is to create economic opportunity for every member of the global workforce through the ongoing development of the world’s first Economic Graph. In 2015, LNKD generated 63% of its revenue from Talent Solutions (incl. Recruiter, Jobs, Learning & Development), 19% from Marketing Solutions (Sponsored Updates, Ads) and 18% from Premium Subscriptions (Professional/Individual, Sales Navigator, ProFinder). The U.S. represented 62% of sales and International represented 38%. LNKD’s market capitalization is $16.7 billion, and with cash & equivalents of $3.1bn against $1.3bn of 0.5% 2019 notes, the company’s enterprise value is only $14.9 billion, down from $32+ billion just six months ago.
*Note: LNKD has several avenues for tremendous growth, in each of its three core divisions. Rather than writing about the minutiae of each division, this write-up is intended to focus on the few key factors that I believe will drive the success of the investment and where my view differs from consensus.*
Keys to the Thesis
While my investment in LNKD is based on my appraisal of the standalone business and platform, the network’s rapid growth has created an impenetrable moat and geometrically higher network value (notwithstanding the current stock price). Founder Reid Hoffman notably was the member of the “PayPal Mafia” who spearheaded that company’s sale to eBay. With 14.7mm shares and a 53% controlling voting stake in the company, Hoffman is driving the bus. To that end, he reportedly spends every Monday at Greylock Partners offices, and the remainder of the week at LNKD HQ where is office is adjacent to CEO Weiner’s. As stated in the New Yorker profile of him, Hoffman said “More or less, if there’s anything in the Valley I’m going to know about it.” I fully expect that Hoffman will maximize value for shareholders, quite possibly through a sale to one of the following companies. To the extent the company was sold to one of the following companies, I would expect a tremendous amount of cost and revenue synergies. As such, in a competitive bidding scenario a valuation of $250-300 seems achievable given LNKD’s monopoly position, growth trajectory and expense structure.
Articles of Interest
Disclaimer: The author of this idea presently has a long position in securities of this issuer and may trade in and out of these positions without notice. The data contained herein are prepared by the author from publicly available sources and the author's independent research and estimates. No representation or warranty is made as to the accuracy of the data or opinions contained herein. Please do your own research.
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