Why LinkedIn (NYSE: LNKD) Is the Dark Horse of Social Media

As we've seen in the past few years, not all social media stocks have been successful investments...

Online game-maker Zynga Inc. (Nasdaq: ZNGA) started trading at $10 a share in 2011, then tumbled 7.75% to $9.25 in just four hours of trading. It never recovered, and in June, the company announced it was cutting 520 jobs. Now Zynga shares are trading at $3.69, compared to a high of $14.69.

Daily deal provider Groupon Inc. (Nasdaq: GRPN) raised a total of $700 million in its 2011 initial public offering (IPO), increasing its offer of shares from 5 million to 35 million. But the two years since have proven less than fruitful for Groupon - shares have fallen by more than 55%. Earlier this year, its chief executive officer/co-founder Andrew Mason was let go.

Facebook Inc. (Nasdaq: FB) is sitting pretty now, but it didn't start out that way. The Facebook IPO was an unmitigated disaster, losing over half of its value within six months of listing. On top of that, it was priced at 107 times trailing 12-month earnings, making it pricier than 99% of all companies in the S&P 500 at the time.

Defense & Tech Specialist Michael A. Robinson has seen a lot of tech companies like these come and go over his 30 years as a leading analyst.

But there's one he's convinced is here to stay.

"LinkedIn is the clear leader in the social media sector. Every headhunter and corporate recruiter I know says this website is absolutely vital to the way they do their jobs," Robinson told readers in Strategic Tech Investor earlier this month.

The Case for Investing in LinkedIn (NYSE: LNKD)

Professional networking company LinkedIn Corp. (NYSE: LNKD) hit the market in 2011. Its shares were priced at $45, and raised $352 million; on opening day, shares rose over 100%.

Now, two years after its IPO, LinkedIn has almost quadrupled in value.

What's the secret to LinkedIn's staying power?

According to Money Morning's E-commerce Director Bret Holmes, who utilizes social media platforms to market online publications, LNKD has fared so well because it found a niche no one else had conquered.

"LinkedIn charges for a service that people happily pay for - no other social media company that I know of does that," said Holmes. "It's paid universal networking at a bargain."

LinkedIn derives a large portion of its profits through subscriptions, appealing to an audience that wants to pay for its service.

By paying a nominal fee for a subscription, the subscriber could land a job or gain valuable networking, advertising, and public endorsements - the idea is that the subscription pays for itself.

And the market has judged this service favorably - not only is LinkedIn's stock on fire, but its earnings are showing a company with strong fundamentals that will continue to perform for investors.

LinkedIn beat Wall Street expectations Tuesday with its earnings report. Its monthly users jumped to 259 million, constituting a 38% increase from last year. Moreover, its revenue rose 56% since last year, at $393 million.

LNKD saw a net loss of $3.4 million (as compared to positive earnings of $2.3 million last year). But actually, its earnings were $46 million when you exclude the impact of taxes related to share compensation and accounting measures, a number that is much higher than last year.

LinkedIn stock is also about to get a nice bump when Twitter starts trading...

"When Twitter goes public, and the offering is successful, it will refocus investor attention on social-media stocks in general," said Robinson. "And the best of those stocks will get a major boost."

LinkedIn stock is up 97% this year. Wall Street gives it a one-year price target of $263 - and 18% premium to where it's trading today.

Make sure to check out Robinson's full breakdown of LNKD in Strategic Tech Investor, Robinson's tech-focused, free investment newsletter.

Wondering what to think about November's upcoming Twitter IPO? Here are 5 reasons why we think the Twitter IPO won't bomb like Facebook's...

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