Should Investors Dump Facebook Stock for LinkedIn?

LinkedIn Corp. (Nasdaq: LNKD) just reported fourth-quarter earnings that blew away Wall Street estimates, a nice addition to its already impressive resume -- and one that is making LNKD much more attractive than Facebook stock.

LinkedIn earned 35 cents a share, nearly triple the 12 cents earned in the same quarter a year ago. Net income soared 60% to $11.5 million, up from $6.9 million. Revenue jumped 81% to $304 million up from $168 million. Analysts were looking for 19 cents on revenue of $280 million.

U.S. markets accounted for 62%, or $189 million, of Q4 revenue. That was down 2% from the previous quarter. But international growth was robust, kicking in $114.6 million to LinkedIn's bottom-line.

CEO Jeff Weiner called 2012 a "transformative year."

"We have exceeded our own expectations by a wide margin," CFO Steve Sordello said during a conference call.

Shares surged $12.11, or some 10%, to $136.20 after hours Thursday following the report. The rally continued Friday with shares climbing another $26, or almost 21%, hitting an all-time high of $150.25 intraday.

Since its May 2011 initial public offering at $45, shares have more than tripled.

A Possible Star in Social Media?

The strong quarter marked the seventh consecutive quarter in which LinkedIn handily beat analysts' forecasts on both earnings and revenue.

Its success has made LNKD the Wall Street darling in an otherwise disappointing sector of social media - with Facebook Inc. (Nasdaq: FB) and its stock being one of the biggest disappointments.

A handful of social media companies have made the recent transition from private to public company, such as daily deals site Groupon Inc. (Nasdaq: GRPN), social game site Zynga Inc. (Nasdaq: ZNGA) and the social networking behemoth Facebook. Yet they have not fared nearly as well as LinkedIn. All are trading below their IPO price and their stocks' performances have been uninspiring at best.

FB is currently trading roughly 25% below its May 18, 2012, debut price of $38, a level it has not seen since.


Facebook and LinkedIn's Websites are similar in that both are aimed at connecting people with similar interests, but their target audience and members are vastly different.

Facebook is the site where people go to share pictures and tidbits. LinkedIn is the go-to site for professionals looking to network, find or fill a job, and further their careers.

Menlo Park, CA-based Facebook is clearly the larger of the two, having amassed more than 1 billon users. For all of 2012, it earned $5.1 billion in revenue.

Meanwhile, Mountain View, CA-based LinkedIn has 200 million global members and total revenue for last year was $972 million.

But LinkedIn is growing much faster than Facebook. Reasons include global growth, increased traffic and years of an elevated unemployment rate that has lured job seekers to the site. But more importantly, LinkedIn is not as dependent on advertising for revenue as Facebook is.

Advertising in Q4 amounted to 27% of LinkedIn's revenue. The rest (and the bulk) came from a variety of tools that it sells to help recruit workers and garner insight from the information that members share on the site.

Conversely, Facebook makes most of its money from advertising, about 84% in 2012. That has been a big problem for the company as more and more members access the site via mobile devices, a platform that is less profitable. As Facebook morphs into a true mobile company, it must find ways to make money from mobile ads (more difficult to size to mobile screens), while not turning off users.

LinkedIn also has a mobile app. Use grew from 15% to 27% year-over-year. When asked about the ongoing testing of mobile ads, CEO Weiner said it's "still early." The company is treading slowly and carefully in the area. LinkedIn wants to "be thoughtful" about its mobile rollout.

The company did move quickly last year updating software that enabled it to see much faster what is working in recruiting software, advertising and subscriptions. The move proved profitable.

LinkedIn gave upbeat guidance for Q1 of 2013, forecasting revenue between $305 million and $310 million, ahead of analysts' projections of $301 million.

By comparison, Facebook provided no future guidance. But a bevy of analysts were quick to weigh in following Q4 results on Jan. 30 with a deluge of downgrades.

Speaking of LinkedIn's results, Needham & Co. analyst Kerry Rice told The Wall Street Journal it was a great quarter.

"The "talent solutions' (LinkedIn's largest business) continues to grow at a very rapid rate. I had expected the growth rate to come down a little bit more," Rice said.

For an investor, LinkedIn's shares look a lot more likeable than Facebook stock right now.

On Friday, LNKD closed up a whopping 21% at $150.48. Facebook stock slipped 0.38% to $28.54.

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