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Linkedin: Professional Revolution

 December 07, 2012 03:16 PM

by Timothy Lutts, editor Cabot Stock of the Month

Long-term, LinkedIn (LNKD) has a revolutionary offering that should propel earnings -- and the stock -- significantly higher.  

The company focuses mainly on the people in a professional network, and on giving them the tools and connections that enable them to do their jobs better. And it allows companies to find the talent they need. As a result, LinkedIn, which was launched in 2003, now has more than 187 million members.

Like many networks, LinkedIn is free for any professional to join; in fact every addition of a new individual makes the network more valuable, so LinkedIn encourages this. But the real money for the company comes from users who pay for extras.

[Related -LinkedIn Corp (LNKD) Q1 Earnings Preview: Traffic Troubles?]

The number one extra is "Talent Solutions," which accounts for roughly 55% of the company's revenues and is used by companies large and small. We have used the service several times to hire high-quality professionals, both local and remote. Big companies, including 85 of the Fortune 100 and many professional recruiters, buy "seats" that cost $8,000 per year. The number two extra is "Marketing Solutions." As on Facebook, these are basically ads targeted to users.

And number three is Premium subscriptions, which give users more tools and connections to do their jobs better. All of these revenue generators are growing fast.

Revenues from Talent Solutions were up 95% in the third quarter vs. a year ago, revenues from Marketing Solutions were up 60% and revenues from Premium subscriptions were up 74%.

[Related -LinkedIn Corp (LNKD): Can Price Overcome Costs?]

Other facts: LinkedIn is available in nineteen languages, and 63% of members are located outside the U.S. so this is a truly global company.

LNKD came public in May of 2011 at $45 and shot up to $123 that same day. And in the 18 months since, the stock has never been able to break cleanly above that $123 level — even while growth metrics have been stratospheric!

There's some resistance to chew through in the 110 area, so some backing-and-filling makes sense here.  But the stock's action suggests that institutions are hesitant to dump shares, and are actually working to acquire positions before an eventual breakout. We recommend that you do the same.

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