Both LinkedIn and Monster are fierce competitors in the rapidly growing online recruitment space. During the first quarter of 2013, LinkedIn exhibited exceptional results with growth in several categories; in contrast, Monster's revenues and earnings remained flat. Investors seeking to invest in the online recruitment space must comprehend the dynamics of the industry and the fundamentals of both companies in order to make the right choice.
How is LinkedIn Positioned?
During the previous fiscal year, LinkedIn's revenues stood marginally under $1 billion. The company seems primed for robust growth in the future, especially through overseas markets as the company itself acknowledged that 70% new additions to its user base came from international markets during the first quarter of 2013. LinkedIn clearly stated in its recently released investors presentation that the overall size of its addressable target market stands at around $27 billion, which enables me to believe that the online recruiting site has massive growth potential in the future.
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LinkedIn generates the highest percentage of its revenues through Recruitment Services at around 54%, which is followed by LinkedIn Ads at around 26%. The remaining 20% revenues are generated through premium subscriptions. Since the company went public two years back, it has surpassed its own conservative guidance for each quarter. During the first quarter of 2013, the company reported net income of $22.3 million, up 5 million from the same quarter previous fiscal. However, it must be noted that LinkedIn's stock price has dropped 5% since quarterly earnings were announced. This is predominantly due to concerns exhibited by investors over its advertising model, which still appears premature.
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Nonetheless, it should not be forgotten that the company still operates on strong fundamentals as it consistently works on improving its offerings. During last October, the company started offering its own content in order to increase the user engagement. The new content offering called the "Influencers" involves content contribution from individuals with supreme leadership status. The list of contributors includes Bill Gates, Jeffrey R. Immelt and President Obama, in addition, these writers are not paid for their contributions, which makes it easier and relatively cheaper to produce.
At present, the company is primarily focusing on increasing its mobile monetization and international presence. Recently, LinkedIn acquired a news reader app called the pulse for a whopping $90 million, which already has a user base of 30 million. Going forward, this acquisition should enable the online professional site to bolster its content offerings and enhance the overall user engagement.
Monster directly competes with LinkedIn. In terms of revenues, Monster is relatively similar to LinkedIn, however, Monster is much smaller in terms of market capitalization as it only stands at around $609 million, where as LinkedIn has a market cap at around $20 billion.
Monster generates its maximum revenues through career services in North America at around 52%, which is followed by its operations in the international markets at around 39%, while, the remaining revenues are generated through advertising.
As the company generates a high percentage of revenues through its international operations, the first quarter of fiscal 2013 was extremely disappointing. Unlike, LinkedIn which charges a fee from job seekers, Monster only charges from employers, therefore, a slowdown in hiring from Europe and Asia dented its revenues. The slowdown in international operations was somehow compensated through a better performance in North America, which reported a 3% year over year decline, however, a 4% sequential growth owing to a sharp rise in operating margins.
Going forward, if the U.S. economy successfully creates more than 2 million jobs during this year, the unemployment rate is estimated to drop to 6.5% from its existing level of approximately 8%. In such an environment, hiring will be expected to pick up once again in North America, which will result in better numbers posted by Monster. Moreover, if the economic environment improves in Europe leading to an increase in hiring, its revenues may witness an even larger jump.
LinkedIn or Monster?
In the current scenario, LinkedIn certainly seems a more attractive investment option, as its stock has appreciated exponentially since it went public. However, investors should not expect LNKD to grow at a similar rate consistently in the future. In the long run, the competitive environment in the online recruitment industry is expected to heat up with several new entrants; thus I expect LinkedIn's growth rate to cool off marginally.